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The form 1099-NEC is a new way to report nonemployee compensation for self-employment income for independent contractors. The IRS has decided to bring this form back and start using with the tax year 2020. Non-Employee compensation used to be reported on Form 1099-MISC box 7 but instead now it will be reported in under Box 1 for Form 1099-NEC.

  1. The payment is made to someone who is not your employee
  2. The payment is made for services during your trade or business
  3. The payment is made to an individual, partnership, estate, or corporation
  4. The payment total is at least $600 for the year

Nonemployee Compensation includes following

  • Fees
  • Benefits
  • Commissions
  • Prizes and awards for services performed by a nonemployee
  • Other forms of compensation for services

Businesses will need to file Form 1099-NEC when they pay an individual at least $10 in royalties, or if the business has withheld any federal income tax under the backup withholding rules regardless of the amount of payments for the year to the nonemployee.

  • Payments of royalties of $10 or more during the year (Box 1)
  • Rents (Box 1)
  • Other income payments (Box 3)
  • Cash paid from an academic principal contract to an individual, partnership, or estate (Box 3)
  • Prizes and awards (Boxes 3 and 7), but not to employees
  • Any fishing boat proceeds (Box 5)
  • Medical and health care payments (Box 6)
  • Services performed by someone who is not your employee (including parts and materials) (Box 7)
  • Fish purchases for cash (Box 7)
  • Attorneys’ fees (Box 7)
  • Substitute payments in lieu of dividends or tax-exempt interest (Box 8)
  • Crop insurance proceeds (Box 10)
  • Gross proceeds payable to an attorney (Box 14)

1099-MISC

1099 Due Date to Recipients: January 31st

Filing to IRS By Mail: March 1st

E-Filing to IRS: March 31st

The 1099-NEC is a multi-part form with the below segments.

    • Copy A: The IRS (Internal Revenue Service)
    • Copy 1: State tax department, if applicable
    • Copy B: Independent contractor
    • Copy 2: Independent contractor
  • Copy C: Keep in your business records

Form 1099-NEC example:

Source: Internal Revenue Service

Form

1099-NEC

Box 1 Nonemployee compensation
Box 2 Reserved (blank)
Box 3 Reserved (blank)
Box 4 Federal income tax withheld
Box 5 State tax withheld
Box 6 State/Payer’s state no.
Box 7 State income

Form 1099-MISC Box 7 data will be reported in Box 7 for Form 1099-NEC for tax year 2020 which will be filed in 2021.

  • At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
  • At least $600 in the following:
  • Rents.
  • Prizes and awards.
  • Other income payments.
  • Generally, cash from a notional principal contract to an individual, a partnership or an estate.
  • Any fishing boat proceeds.
  • Medical and health care payments.
  • Crop insurance proceeds.
  • Payments to an attorney.
  • Section 409A deferrals.
  • Nonqualified deferred compensation.

✓ Form 1099-NEC should NOT be used to report any Employee’s Income. They must receive Form W-2.
✓ Form 1099-NEC should NOT be used to report any payments for non-business related or personal payments.
✓ Form 1099-NEC should NOT be used to report gross proceeds to an attorney. Form 1099-MISC must be used.
✓ Form 1099-NEC should NOT be used to report payments for merchandise, phone, freight, storage, etc.
✓ Form 1099-NEC should NOT be used to report payment of rent to real estate agents or property managers. Form 1099-MISC must be used)
✓ Form 1099-NEC should NOT be used to report payments to a tax-exempt organization, tax-exempt trusts, federal, state, or local governments.

Penalty per Form Length of Delay
$50 More than 30 days late
$110 More than 30 days late but before August 1st
$270 Filing on or after August 1st
$550 Intentionally neglecting to file

1099-MISC (Box 7 NEC Only)
1099 Due Date to Recipients: January 31st
Filing to IRS By Mail: January 31st
E-Filing to IRS: January 31st
1099-MISC (Other Forms)
1099 Due Date to Recipients: January 31st
Filing to IRS By Mail: February 28th
E-Filing to IRS: March 31st

The 1099-MISC is a multi-part form with the below segments.

  • Copy A is submitted to the IRS by the payer (your business)
  • Copy 1 is submitted to the state tax department by the payer
  • Copy B is for the recipient
  • Copy 2 is given to the recipient for filing with the state tax return
  • Copy C is kept by the payer