Knowing when to file IRS Form 1099-NEC and Form 1099-MISC.
Since the introduction of Form 1099-NEC, many business owners have faced challenges determining the appropriate tax form to file for outsourced work. Here’s a straightforward comparison to help you choose the correct one.
Form 1099-NEC
Non-employee compensation for independent contractors and consultants.
Who is considered an independent contractor or consultant?
An independent contractor or consultant is a self-employed individual who provides services without being directly managed by your business.
Suppose you want to increase your brand awareness and decide to hire a marketing specialist to handle your brand management activities. In this scenario, your company is only involved by sharing your marketing goals and providing feedback on the final results. The marketing specialist performs their services independently, and if their payments total $600 or more during the calendar year, these payments must be reported at year-end.
Form 1099-MISC
The following types of payments will continue to be reported on Form 1099-MISC:
- Royalties or broker payments paid instead of dividends or tax-exempt interest of at least $10 or more
- Rents ($600 or more)
- Prizes and awards ($600 or more)
- Medical and health care payments ($600 or more)
- Crop insurance proceeds ($600 or more)
- Attorney payments ($600 or more)
- Fishing boat proceeds ($600 or more)
- Cash from a notional principal contract (NPC) to an individual, partnership, or estate
- Cash payments for acquatic life
- Other income payments
- Direct sales of consumer products to a reseller ($5,000 or more)
Filing Forms 1099-NEC and 1099-MISC
You can file 1099 forms by mail or online.
Start by identifying the providers for whom you need to file a 1099. Generate a report from your bookkeeping software that summarizes expenses by vendor, focusing on those you paid at least $600.
Next, determine which are self-employed individuals, partnerships, or non-profit organizations. Remember, unless they are for medical or legal services, you don’t need to file a 1099-NEC for payments to corporations (S-corp or C-corp).
It is essential to have a Form W-9 for each contractor. If you don’t have one, obtain one for compliance and to prepare their 1099. The W-9 will include the contractor’s business name, entity type, tax ID (FEIN or SSN), and address.
Finally, categorize the payments you made to decide whether to issue a 1099-NEC or 1099-MISC and allocate the amounts accordingly. Some providers may need both forms based on the payment types.
Choose your filing method (online or by mail) to submit your 1099s out by January 31st. There are late filing penalties imposed if the 1099s are not post marked or submitted on time.
Hands-Free 1099 Filing
Resources
About Form 1099-MISC, Miscellaneous Information | Internal Revenue Service. (2016). Irs.gov. https://www.irs.gov/forms-pubs/about-form-1099-misc
About Form 1099-NEC, Nonemployee Compensation | Internal Revenue Service. (2019). Irs.gov. https://www.irs.gov/forms-pubs/about-form-1099-nec
Instructions for Forms 1099-MISC and 1099-NEC (01/2024) | Internal Revenue Service. (2024). Irs.gov. https://www.irs.gov/instructions/i1099mec
Form 1099-MISC. (Revised January 2024). https://www.irs.gov/pub/irs-pdf/f1099msc.pdf
Form 1099-NEC. (Revised January 2024). https://www.irs.gov/pub/irs-pdf/f1099nec.pdf
Independent contractor defined | Internal Revenue Service. (2016). Irs.gov. https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-defined
Form 1099 NEC & Independent Contractors | Internal Revenue Service. (2024). Irs.gov. https://www.irs.gov/faqs/small-business-self-employed-other-business/form-1099-nec-independent-contractors/form-1099-nec-independent-contractors
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