IRS is re-introducing the 1099-NEC Form for the tax reporting in 2020. Effectively for Tax Year 2020, what is now Box 7 on the Form 1099-MISC becomes Box 1 on the From 1099-NEC and Box 7 on the 1099-MISC we be removed.
Here is everything you need to know about what it is, how to file it, and how it compares to the 1099-MISC Form.
Disclaimer: This article serves as information only and should not be considered as tax advice. All examples are taken from IRS' Instructions for Forms 1099-MISC and 1099-NEC.
What is 1099-NEC Form
Form 1099-NEC serves for reporting nonemployee compensation for the 2020 tax year (to be filed in 2021). It was used in the past before 1982 when the IRS depreciated it.
When reporting nonemployee compensation on Form 1099-NEC, the IRS explains that payment must be reported if all four of these conditions are met:
- It is made to someone who is not your employee
- It is made for services in the course of your trade or business
- It was made to an individual, partnership, estate, or, in some cases, a corporation
- The payments made to that payee were at least $600 or more for the year.
Examples of payments you must report on Form 1099-NEC
- Professional service fees to attorneys (including law firms established as corporations), accountants, architects, etc.
- Fees paid by one professional to another (fee-splitting, for example)
- Payments for services including payment for parts or materials used to perform the services if they were incidental to the service
- Commissions paid to nonemployee salespeople not repaid during the year
You must also file Form 1099-NEC for each person from whom you have withheld any federal income tax under the backup withholding rules regardless of the amount of the payment.
Examples of exceptions to reporting payments on Form 1099-NEC
- Payments and expense reimbursements for employees (should be reported in the W-2 Form)
- Payments to a corporation (including a limited liability company (LLC) that is treated as a C or S corporation)
- Payments for merchandise, telegrams, telephone, freight, storage, and similar items
- Payments of rent to real estate agents or property managers, however, the real estate agent or property manager must use Form 1099-MISC to report the rent paid over to the property owner.
- Payments made with a credit card or payment card and certain other types of payments, including third-party network transactions, (such payments should be reported on Form 1099-K)