In 2020, the rules for filing and submitting 1099-NEC and 1099-MISC tax forms changed. Moving forward, 1099-MISC forms are no longer used to submit nonemployee compensation. This separates nonemployee payments from miscellaneous payments and eliminates the confusion around form due dates.
Filing either 1099-NEC or 1099-MISC requires the completion of a Form 1096 as well. This is an Annual Summary and Transmittal of U.S. Information Returns that summarizes all of your 1099 files for the year. IRS uses this form to summarize the tax forms businesses send to hired workers.
What is a 1099-NEC
The 1099-NEC reports nonemployee compensation. Business owners use this form to report money paid to nonemployee independent contractors for any service worth a minimum of $600. This form is due to employees on the same day as the W-2 employee forms, January 31st.
Businesses owners that hire independent contractors for a $5,000 floor remodel of their company’s office space are required to provide the 1099-NEC form to the independent contractor or contractors hired for the job. On the contrary, someone who hires a floor remodel of their home pays the independent contractor but does not provide a 1099 NEC form.
IRS requires a 1099-NEC form be given to:
- Independent contractors who are not W-2 employees
- Those paid for services for a trade or business, not a personal project
- Payment is made to the independent contractor, a partnership, estate, or corporation
- The payment exceeds $600 for the calendar year.
- Any individual who receives at least $10 in royalties
- Nonemployees who had any amount of federal income taxes withheld under backup withholding rules
- Cash payments to fisherman
Nonemployee compensation includes:
- Awards for services
- Any type of compensation businesses grant nonemployees.
What is a 1099-MISC
A 1099-MISC is a tax form distributed to independent contractors, not W-2 employees. The form represents miscellaneous income (other types of income) IRS requires each employee to file. This reporting system is only used for trades or businesses that gained a profit, not for personal payments.
According to IRS, the following miscellaneous payment must be filed:
- “At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest
- At least $600 in:
- Prizes and awards
- Other income payments
- Generally, the cash paid from a notional principal contract to an individual, partnership or estate
- Any fishing boat proceeds
- Medical and health care payments
- Crop insurance proceeds
- Payments to an attorney
- Section 409A deferrals
- Nonqualified deferred compensation
- You must also file Form 1099-MISC for each person from whom you have withheld any federal income tax under the back up withholding rules regardless of the amount of payment.”
Forbes explains, “a person will now receive 1099-MISC to report payments that are not subject to self-employment taxes.”
Paper 1099-MISC forms are due by March 1st and due the 31st if filing electronically. For more information and due date updates from IRS, review here.
Know which of your hired employees receive 1099 tax forms by correctly classifying your nonemployees through a got1099 report. Our report verifies your independent contractors and W-2 employees to avoid a misclassification triggering an EDD audit. Incorrectly classifying employees can lead to fines, penalties, and potential jail time.
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got1099 is a business reporting company providing business analysis reports to companies re: their 1099 independent contractors We do not provide legal advice. Consult with your attorney relating to any legal issues.