Introduction to U.S. Form 1099-NEC

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Introduction to U.S. Form 1099-NEC

 

Beginning with the 2020 tax year, the IRS would require business taxpayers to report nonemployee compensation on the new Form 1099-NEC instead of on Form 1099-MISC. Businesses would need to use this form if they made payments totaling $600 or more to a nonemployee, such as an independent contractor.

 

Form 1099-MISC, Miscellaneous Income, is an information return that businesses use to report payments (e.g., rents and royalties) to nonemployees. Each payer must complete the Form 1099-MISC and send the copy of the Form by January 31 if during the tax year the payer pays $600 or more to a recipient.  And the recipient should report all earnings on the tax return.

 

Form 1099-NEC is not a replacement for Form 1099-MISC. Form 1099-NEC, Nonemployee Compensation, is a form that solely reports nonemployee compensation. Form 1099-NEC is only replacing the use of Form 1099-MISC for reporting independent contractor payments. Prior to 2020, you would include nonemployee compensation in Box 7 on Form 1099-MISC.

 

If the following four conditions are met, a payment is classified as a nonemployee compensation and required to be reported on Form 1099-NEC.

 

  1. The payment is made to someone who is not your employee;
  2. The payment is made for services in the course of your trade or business (including government agencies and nonprofit organizations);
  3. The payment is made to an individual, partnership, estate, or in some cases, a corporation; and
  4. The payment is made to the payee of at least $600 during the year.

 

Like Form 1099-MISC, Form 1099-NEC includes the following information: Your name, address, and phone number; Your TIN (Taxpayer Identification Number); Recipient’s name, address, and TIN; Total nonemployee compensation; Federal and state income tax withheld (if applicable). And there are multiple copies of Form 1099-NEC you must distribute.

 

Please make sure to distribute the following copy to the right recipient before the deadline to avoid penalty:

 

Copy A: The IRS (by January 31)

Copy 1: State tax department, if applicable

Copy B: Independent contractor (by January 31)

Copy 2: Independent contractor (by January 31)

Copy C: Keep in your business records.

 

Reference:

https://www.irs.gov/businesses/small-businesses-self-employed/reporting-payments-to-independent-contractors

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