Starting in tax year 2020, Form 1099-NEC replaces former Box 7 on Form 1099-MISC.
What Is Form 1099-NEC?
This form solely reports Non-Employee Compensation (NEC). It replaces the use of Form 1099-MISC for reporting non-employee compensation (formerly Box 7).
The odd thing about Form 1099-NEC is that it’s not a new form at all. It was last used in 1982 but was retired. However, the IRS realized that reporting non-employee compensation on Form 1099-MISC was too complicated because the one form had multiple due dates for various boxes on the form. Learn more about why 1099-NEC returned here.
What Is 1099-NEC Used For?
Starting in tax season 2020, you will need to fill out Form 1099-NEC if you paid any worker $600 or more during the calendar year in non-employee compensation. This includes:
- You paid someone who is not your employee
- You paid for services in the course of your trade or employment
- You paid an individual, partnership, estate, or corporation
Non-employee compensation includes the following payment types to independent contractors:
- Other forms of compensation for services
How Do You Fill Out Form 1099-NEC?
When filling out Form 1099-NEC, you will need the following information:
- Business’s name, address, and phone number
- Business’s TIN (Taxpayer Identification Number)
- Recipient’s name, address, and TIN
- Total non-employee compensation
- Federal and state income tax withheld
Like Form 1099-MISC, there are multiple copies of Form 1099-NEC you must distribute:
- Copy A to the IRS
- Copy 1 to the State tax department, if applicable
- Copy B to the independent contractor
- Copy 2 to the independent contractor for his or her state income tax return
- Copy C to keep in your business records
You can file Form 1099-NEC electronically or by mail.
What Else Moves From Form 1099-MISC to 1099-NEC?
In addition to the typical independent contractor payments, you will now report the following on the 1099-NEC that you previously reported on Form 1099-MISC:
- Director’s fees (Box 1)
- Backup withholdings (Box 4)
- Transit passes* (Box 1)
- Commissions paid to lottery ticket sales agents (Box 1)
- Payments made on behalf of another person
When Is the Due Date?
According to the IRS, you must “furnish Copy B of this form to the recipient by February 1, 2021. File Copy A of this form with the IRS by February 1, 2021.”
The normal due date is January 31 each year, but January 31, 2021 falls on a Sunday, making the deadline February 1 in 2021.
What Does 1099-NEC Mean For Your Business?
With the revival of Form 1099-NEC, you may need to file both 1099-MISC and 1099-NEC forms during the 2020 tax year and beyond, depending on your business’s expenses. You may even need to file them for the same recipient.
Federally, Form 1099-NEC replaces non-employee compensation previously reported in Box 7 of Form 1099-MISC, but states may vary on whether they adopt new forms to accommodate this change. At this time, we are unsure if Form 1099-NEC will be able to be filed using the Combined Federal/State Filing Program. It’s best to double-check what your recipient’s state requires before filing.
E-file 1099-NEC and 1099-MISC forms with eFile360. Sign up for a free account here.
*This applies to any passes given to independent contractors that are valued at over $21 per month. Under certain conditions, parking can be excluded from an independent contractor’s gross income, and would not be reported on the 1099‐NEC. We recommend that you seek out a tax professional to determine what transit passes, if any, you need to report.