What is 1099-NEC Form?
Form 1099-NEC is the newly implemented form for filing taxes for self-employed individuals. The IRS has directed that starting from the 2021 tax year, employers of labor and organizations will be required to use the 1099-NEC Form. This will be for recording and reporting the income and compensation of non-employees, independent contractors, or freelancers. For payments to non-employees over $600, employers and business taxpayers will have to use the Form 1099-NEC.
Form 1099-NEC is not a replacement for Form 1099-MISC. Form 1099-NEC is only replacing the use of Form 1099-MISC for reporting independent contractor payments, if the company made payments with a total of $600 or more to a non-employee.
Also, non-employee compensation can include:
- Fees or Benefits or Commissions or Rents
- Prizes and awards for services performed by a non-employee
- Other forms of compensation for services performed for your trade or business by an individual who is not your employee
- Small businesses or 409A attorneys
What is the difference between the 1099 NEC and the 1099 MISC Forms?
Prior to the restoration of the Form 1099 NEC, the 1099 MISC Forms has been the sole tax filing form for employers for years. The IRS re-established the 1099-NEC Form after decades to make a distinction between payments to third-party contractors and miscellaneous income.
The re-introduction of the 1099-NEC Form does not spell the end for the 1099 MISC Forms they now serve separate purposes. The major difference is that the 1099 MISC can be used to report diverse kinds of payments made other than business transactions between businesses and contractors. On the other hand, the 1099 NEC is SPECIFICALLY for trade or business transactions with individuals that are not on a business’s payroll. Some of the payments and incentives that can be reported in the 1099-NEC Form include fees, commissions, gift items, awards of recognition, etc.