New IRS Form 1099-NEC Radically Changes Tax Reporting

November 23, 2020

* By Jaime Lizotte, Tax & HR Compliance Solutions Manager at ComplyRight, an NSBA partner

True or False? You must file a Form 1099-MISC with the IRS to report independent contractor compensation.

In the past, this statement was true. But no more. The IRS has recently released Form 1099-NEC. This form replaces Form 1099-MISC box 7 for reporting non-employee compensation. To put it simply, your independent contractors will now receive Form 1099-NEC instead of the 1099-MISC.

When to Use Form 1099-NEC

For independent contractors, the new 1099-NEC performs the exact same function as 1099-MISC box 7. That is, the new 1099-NEC captures payments of $600 or more to service providers — typically work done by an independent contractor who is a sole proprietor or member of a partnership. Common examples include:

  • Graphic designers
  • Web developers
  • Cleaning professionals
  • Freelance writers
  • Landscapers
  • And other self-employed individuals

The deadline to distribute the new 1099-NEC to recipients is February 1, 2021 (since January 31 falls on a Sunday). This is also the date you must file these forms with the IRS — whether you are filing via paper or electronically.

To help you with your filing, consider these do’s and don’ts:

  • DO make sure you have a Form W-9 on file for each contractor before completing Form 1099-NEC.
  • DO verify that the taxpayer ID is correct for each independent contractor.
  • DON’T use Form 1099-NEC to report personal payments.
  • DON’T use Form 1099-NEC to report employee wages (use the W-2 instead).

When to Use Form 1099-MISC

So now that independent contractors are receiving Form 1099-NEC, when should you use a 1099-MISC? You should file a Form 1099-MISC to report the total amount of payments a person receives from a single person or company during the tax year. These types of payments include:

  • Royalties
  • Rent
  • Prizes
  • Awards and substitute payments in lieu of dividends

Get Clear on the Difference

Visit eFile4Biz to see an image of the 1099-NEC along with instructions on how to complete the form. This helpful resource also includes more information on this major change and the differences between the two forms. Plus, the site gives you an easy, accurate way to electronically file your 1099s, W-2s and ACA reporting forms ― so you can meet the deadlines and avoid penalties.