Form 1099-NEC vs Form 1099-MISC: What's New for 2020

Form 1099-NEC has replaced Form 1099-MISC for reporting non-employee payouts. Here's when to use each form, the differences, and the deadlines to file for 2021 taxes.

Written by Anja Simic
October 18, 2021

Form 1099-NEC vs Form 1099-MISC: What's New for 2020

Form 1099-NEC has replaced Form 1099-MISC for reporting non-employee payouts. Here's when to use each form, the differences, and the deadlines to file for 2021 taxes.

Written by Anja Simic
October 18, 2021

Form 1099-NEC vs Form 1099-MISC: What's New for 2020

Form 1099-NEC has replaced Form 1099-MISC for reporting non-employee payouts. Here's when to use each form, the differences, and the deadlines to file for 2021 taxes.

Form 1099-NEC vs Form 1099-MISC: What's New for 2020

Form 1099-NEC has replaced Form 1099-MISC for reporting non-employee payouts. Here's when to use each form, the differences, and the deadlines to file for 2021 taxes.

If you're an independent contractor or a client working with contractors, chances are you've heard about the new Form 1099-NEC. This is the tax form the Internal Revenue Service (IRS) introduced in 2020 for reporting payments to non-employees and self-employed individuals.

Here's our guide to these forms, their differences, how and when to file each.

What is Form 1099-NEC?

The new Form 1099-NEC (non-employee compensation) is not really new at all - this form was last used back in 1982, but the IRS reintroduced it in 2020. Going forward, the 1099-NEC is be the exclusive form business taxpayers will use to report payments to independent contractors (or freelancers) each tax season.

The reason behind the change

This means that Form 1099-NEC will replace box 7 on Form 1099-MISC, which is where clients used to report non-employee forms of compensation. In short - if a client paid more than $600 within the calendar year to a non-employee, they'll use Form 1099-NEC to report the payments.  

A bit of history and background: before 2015, the deadline for filing non-employee compensation forms such as the 1099-MISC was the end of February for paper filing and March 31st for electronic filing.

Meanwhile, Form W-2, used to report employee compensation, was due on January 31st. This gap between deadlines meant that taxpayers could file taxes and get tax refunds before their non-employee income forms were even reported to the IRS. This led to taxpayers reporting lower compensation than what they actually earned.

In 2015, the IRS enacted the Protecting Americans from Tax Hikes Act, which resolved the underlying date difference by moving the deadline for filers to report non-employee compensation to January 31st, aligning it with the W-2 deadline.

However, other business payments (such as rent) that used the 1099-MISC were still stuck on the old deadline of February 28th or March 31st. This misalignment meant that employers had to issue multiple 1099-MISC forms with different deadlines, making it a confusing time for everyone involved.

Finally, in 2020, the IRS reintroduced Form 1099-NEC, which you now use to report nonemployee compensation payments.

Does Form 1099-MISC still exist?

Yes, Form 1099-MISC is the tax form used to report miscellaneous income. It went through a redesign in 2020 to remove non-employee compensation from its scope, but it still exists.

The most significant change to Form 1099-MISC is in box 7, which was previously used to report independent contractor payments. In the redesigned version, however, box 7 serves for reporting direct sales of consumer products worth $5,000 or more aimed for resale. If you got a 1099-MISC with Box 7 filled in, and it represents your contractor payments, you should request a 1099-NEC slip instead.

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Who needs to file Form 1099-NEC?

If your company, as a client, paid an independent contractor more than $600 during the year, you will be required to file the new Form 1099-NEC. The reportable types of payments need to be made in the course of your trade or business. Here are some examples of payments you need to report on the 1099-NEC:

  • Professional service fees to architects, designers, accountants, software engineers, attorneys, and law firms
  • Fees paid by one professional to another
  • Commissions to non-employee salespeople that are subject to repayment but haven't been repaid in the course of the year

You do not file this form for employees since they have the dedicated Form W-2 for reporting their salaries. You also don't file the 1099-NEC for independent contractors registered as a C corporation or an S corporation.

You do need to file Form 1099-NEC for each individual you have withheld federal income tax for under the backup withholding rules, no matter how much you paid them.

Who needs to file Form 1099-MISC?

Generate a Form 1099-MISC if you paid more than $600 during a calendar year to an individual or company for the following:

  • Rent payments (unless you pay them to real estate agents or property managers)
  • Prizes and awards
  • Other income payments
  • Cash from a notional principal contract to an individual, a partnership, or an estate.
  • Fishing boat proceeds
  • Medical and health care payments
  • Crop insurance proceeds
  • Payments to an attorney
  • Section 409A deferrals
  • Nonqualified deferred compensation
  • Gross proceeds paid to an attorney

As with Form 1099-NEC, file a Form 1099-MISC for each person you have withheld federal income tax for under the backup withholding rules regardless of the payment amount.

How to file Form 1099-NEC

Filing the 1099-NEC is the responsibility of the payer. All that payees need to do is provide:

  • For US residents: Form W-9 (Request for Taxpayer Identification Number), which enables them to report independent contractor payments. The contractors report their income via a Schedule C form.
  • For non-US residents: Form W-8BEN or W-8BEN-E 9 (Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting), which enables them to prove they reside outside of the United States.

The clients, on the other hand, need to obtain the said Form W-9 or Form W-8BEN(E) from their contractors and then proceed with filing Form 1099-NEC with the IRS. There are two copies that payers file: Copy A, which is for the IRS, and Copy B, which is for the contractor. If applicable, you can mail one copy to the state tax department and keep one for your records.

Filing the form can be done either through mail or through an e-file. If you want to submit the form through the mail, you need to request a physical copy from the IRS through their website. Then, you need to add Form 1096, which summarizes the other forms, as a cover page before filing.

Electronic filing is done with IRS's Filing Information Returns Electronically (FIRE) system. To register with FIRE, request a Transmitter Control Code (TCC), which you do by mailing Form 4419 to the IRS. Make sure to submit Form 4419 at least 30 days before the due date for submitting Form 1099-NEC.

Filing electronically is way easier and quicker than doing it by mail. Depending on which state you are in, you can also benefit from states that participate in the FIRE system, which means you won't have to file separately.

Filing deadline for 1099-NEC and 1099-MISC

The deadline for filing your Form 1099-NEC and Form 1099-MISC to the IRS for the prior year is January 31st. If that happens not to be a business day, the deadline moves to the next business day. The same deadlines apply to delivering a Copy B to the service provider since they will need it for their tax returns.

Don't forget to check your state filing requirements for 1099 forms. Some states, such as Florida, Nevada, New York, Texas, and Washington, ensure that the IRS forwards them relevant electronically filed forms.

The penalties for missing the deadline to submit Form 1099-NEC and 1099-MISC vary and grow depending on how late they are. If you file the forms within the first 30 days after the deadline, the fine will be $50 and increase to $100 if you file before August 1st. If you can't make it on time, it's best to ask for an extension - do this by submitting Form 8809.

Note: If you're unsure about any filling in any part of your tax forms, it's recommended to consult a CPA or another tax professional who can ensure you've done everything correctly. If you're a small business owner, it can save you a lot of effort and time.

Using Deel to file 1099 forms

With Deel, you can generate and file your 1099 forms in seconds. Deel's tax feature lets US users collect data, generate tax forms, and file 1099 forms to the IRS directly from the dashboard. Schedule a product tour with a specialist to learn more.

Further reading:

If you're an independent contractor or a client working with contractors, chances are you've heard about the new Form 1099-NEC. This is the tax form the Internal Revenue Service (IRS) introduced in 2020 for reporting payments to non-employees and self-employed individuals.

Here's our guide to these forms, their differences, how and when to file each.

What is Form 1099-NEC?

The new Form 1099-NEC (non-employee compensation) is not really new at all - this form was last used back in 1982, but the IRS reintroduced it in 2020. Going forward, the 1099-NEC is be the exclusive form business taxpayers will use to report payments to independent contractors (or freelancers) each tax season.

The reason behind the change

This means that Form 1099-NEC will replace box 7 on Form 1099-MISC, which is where clients used to report non-employee forms of compensation. In short - if a client paid more than $600 within the calendar year to a non-employee, they'll use Form 1099-NEC to report the payments.  

A bit of history and background: before 2015, the deadline for filing non-employee compensation forms such as the 1099-MISC was the end of February for paper filing and March 31st for electronic filing.

Meanwhile, Form W-2, used to report employee compensation, was due on January 31st. This gap between deadlines meant that taxpayers could file taxes and get tax refunds before their non-employee income forms were even reported to the IRS. This led to taxpayers reporting lower compensation than what they actually earned.

In 2015, the IRS enacted the Protecting Americans from Tax Hikes Act, which resolved the underlying date difference by moving the deadline for filers to report non-employee compensation to January 31st, aligning it with the W-2 deadline.

However, other business payments (such as rent) that used the 1099-MISC were still stuck on the old deadline of February 28th or March 31st. This misalignment meant that employers had to issue multiple 1099-MISC forms with different deadlines, making it a confusing time for everyone involved.

Finally, in 2020, the IRS reintroduced Form 1099-NEC, which you now use to report nonemployee compensation payments.

Does Form 1099-MISC still exist?

Yes, Form 1099-MISC is the tax form used to report miscellaneous income. It went through a redesign in 2020 to remove non-employee compensation from its scope, but it still exists.

The most significant change to Form 1099-MISC is in box 7, which was previously used to report independent contractor payments. In the redesigned version, however, box 7 serves for reporting direct sales of consumer products worth $5,000 or more aimed for resale. If you got a 1099-MISC with Box 7 filled in, and it represents your contractor payments, you should request a 1099-NEC slip instead.

Who needs to file Form 1099-NEC?

If your company, as a client, paid an independent contractor more than $600 during the year, you will be required to file the new Form 1099-NEC. The reportable types of payments need to be made in the course of your trade or business. Here are some examples of payments you need to report on the 1099-NEC:

  • Professional service fees to architects, designers, accountants, software engineers, attorneys, and law firms
  • Fees paid by one professional to another
  • Commissions to non-employee salespeople that are subject to repayment but haven't been repaid in the course of the year

You do not file this form for employees since they have the dedicated Form W-2 for reporting their salaries. You also don't file the 1099-NEC for independent contractors registered as a C corporation or an S corporation.

You do need to file Form 1099-NEC for each individual you have withheld federal income tax for under the backup withholding rules, no matter how much you paid them.

Who needs to file Form 1099-MISC?

Generate a Form 1099-MISC if you paid more than $600 during a calendar year to an individual or company for the following:

  • Rent payments (unless you pay them to real estate agents or property managers)
  • Prizes and awards
  • Other income payments
  • Cash from a notional principal contract to an individual, a partnership, or an estate.
  • Fishing boat proceeds
  • Medical and health care payments
  • Crop insurance proceeds
  • Payments to an attorney
  • Section 409A deferrals
  • Nonqualified deferred compensation
  • Gross proceeds paid to an attorney

As with Form 1099-NEC, file a Form 1099-MISC for each person you have withheld federal income tax for under the backup withholding rules regardless of the payment amount.

Automate your tax document collection

From collecting tax forms to storing them all in one place, we automate everything, so you can stay focused on growing your business.

Learn more

How to file Form 1099-NEC

Filing the 1099-NEC is the responsibility of the payer. All that payees need to do is provide:

  • For US residents: Form W-9 (Request for Taxpayer Identification Number), which enables them to report independent contractor payments. The contractors report their income via a Schedule C form.
  • For non-US residents: Form W-8BEN or W-8BEN-E 9 (Certificate of Status of Beneficial Owner for United States Tax Withholding and Reporting), which enables them to prove they reside outside of the United States.

The clients, on the other hand, need to obtain the said Form W-9 or Form W-8BEN(E) from their contractors and then proceed with filing Form 1099-NEC with the IRS. There are two copies that payers file: Copy A, which is for the IRS, and Copy B, which is for the contractor. If applicable, you can mail one copy to the state tax department and keep one for your records.

Filing the form can be done either through mail or through an e-file. If you want to submit the form through the mail, you need to request a physical copy from the IRS through their website. Then, you need to add Form 1096, which summarizes the other forms, as a cover page before filing.

Electronic filing is done with IRS's Filing Information Returns Electronically (FIRE) system. To register with FIRE, request a Transmitter Control Code (TCC), which you do by mailing Form 4419 to the IRS. Make sure to submit Form 4419 at least 30 days before the due date for submitting Form 1099-NEC.

Filing electronically is way easier and quicker than doing it by mail. Depending on which state you are in, you can also benefit from states that participate in the FIRE system, which means you won't have to file separately.

Filing deadline for 1099-NEC and 1099-MISC

The deadline for filing your Form 1099-NEC and Form 1099-MISC to the IRS for the prior year is January 31st. If that happens not to be a business day, the deadline moves to the next business day. The same deadlines apply to delivering a Copy B to the service provider since they will need it for their tax returns.

Don't forget to check your state filing requirements for 1099 forms. Some states, such as Florida, Nevada, New York, Texas, and Washington, ensure that the IRS forwards them relevant electronically filed forms.

The penalties for missing the deadline to submit Form 1099-NEC and 1099-MISC vary and grow depending on how late they are. If you file the forms within the first 30 days after the deadline, the fine will be $50 and increase to $100 if you file before August 1st. If you can't make it on time, it's best to ask for an extension - do this by submitting Form 8809.

Note: If you're unsure about any filling in any part of your tax forms, it's recommended to consult a CPA or another tax professional who can ensure you've done everything correctly. If you're a small business owner, it can save you a lot of effort and time.

Using Deel to file 1099 forms

With Deel, you can generate and file your 1099 forms in seconds. Deel's tax feature lets US users collect data, generate tax forms, and file 1099 forms to the IRS directly from the dashboard. Schedule a product tour with a specialist to learn more.

Further reading: