Prior to 2020, if you have hired independent contractors for your business, you issued Form 1099-MISC to document the amount you paid them. Now, the IRS has introduced Form 1099-NEC, a new form for reporting independent contractor payments (officially known as “nonemployee compensation”).
Here is what you need to know about Form 1099-NEC:
What is Form 1099-NEC?
The IRS has separated the reporting of payments to nonemployees from Form 1099-MISC and redesigned it for tax year 2020.
Form 1099-NEC is a form created specifically for reporting nonemployee compensation. Nonemployee compensation is the money you pay to an independent contractor who performs work for you.
This includes independent contractors, gig workers, or self-employed individuals who previously had their payments reported in Box 7 of Form 1099-MISC.
Who needs to use Form 1099-NEC?
You must generally report payments as nonemployee compensation on Form 1099-NEC if you met all four of the following conditions:
- You paid someone who is not your employee.
- You paid for services rendered in the course of your trade or business. This includes government agencies and nonprofit organizations.
- You paid an individual, a partnership, an estate or, in some cases, a corporation.
- You made payments to the payee of at least $600 during the year.
Common examples of nonemployee compensation include:
- Payments to independent contractors.
- Fees paid for professional services of attorneys and accountants. The term “attorney” includes a law firm or other provider of legal services. Attorneys’ fees of $600 or more paid in the course of your trade or business are reportable in Box 1 of Form 1099-NEC.
Commissions paid to nonemployee salespersons which are subject to repayment but not repaid during the calendar year.
Employers must also file Form 1099-NEC for anyone from whom you withheld federal income tax under backup withholding rules for any amount, even if it is less than $600.
Employers are required to issue Form 1099-NEC to the payee and file a copy with the IRS by January 31.
Continue filing Form 1099-MISC for the following:
- if you have paid at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest; or
- if you have paid at least $600 in the following types of payments:
- prizes and awards;
- other income payments;
- generally, cash from a notional principal contract to an individual, a partnership or an estate;
- any fishing boat proceeds;
- medical and health care payments;
- crop insurance proceeds;
- Section 409A deferrals;
- nonqualified deferred compensation; or
- gross proceeds to attorneys (reported in Box 10 of Form 1099-MISC) for payments which:
- are made to an attorney in the course of your trade or business in connection with legal services, but not for the attorney’s services, for example, as in a settlement agreement; and
- are not otherwise reportable by you in Box 1 of Form 1099-NEC.
In 2021, Employers must issue Form 1099-MISC to the recipient by February 1 and file with the IRS by March 1 (March 31 if filing electronically).
For Our Clients:
If you are a current client, we will issue Form 1099-NEC to individuals who currently have amounts reported under the 1099-MISC pay type, unless the reported amount is considered “Rent.” Please remember to submit all 1099 payment information to your payroll specialist by 2PM on Wednesday, December 30, 2020 to avoid late charges.
For new 1099 individuals, be sure to provide your payroll specialist the information listed below before the due date.
- Company Name or Individual’s Name
- Federal Identification Number or Social Security Number
- Indicate 1099-NEC or 1099-MISC
Please note we also provide 1099 filing service for other forms; 1099-DIV, 1099-INT, 1099-R, and 1099-S. Click here to access our 2020 Year End Payroll Planner for additional information regarding these services and filing fees for 2020.