1099-MISC or 1099-NEC?
The IRS has created a new 1099 form for tax year 2020. The new form 1099-NEC is used to report non-employee compensation. In the past, non-employee compensation had been reported in box 7 of Form 1099-MISC. Form 1099-MISC has been redesigned for 2020 due to the new form 1099-NEC.
Which form to use?
Use form 1099-NEC to report payments that meet all 4 of these criteria:
- You made the payment to someone who is not your employee
- You made the payment for services rendered in the conduct of your trade or business
- You made the payment to an individual, a partnership, an LLC filing as a partnership or sole proprietor, an estate, or, in some cases, a corporation
- You made payments of at least $600 to the same payee
Common examples of payments to be reported on this new form are independent contractors, professional service fees to an accountant or attorney, cleaning services, etc.
Continue to use form 1099-MISC for payments of $600 or more from your trade or business for the following*:
- Other income
- Medical and healthcare payments
- Gross proceeds to an attorney (not payments to an attorney for their services – that is now on 1099-NEC)
- Prizes and awards
*There are other uses for 1099-MISC that are less common and are not listed here.
Recipients who need a 1099-MISC are the same types of entities listed in #3 under Form 1099-NEC.
When to File?
Form 1099-NEC is to be filed with the IRS by January 31st of the year following the calendar year when payments were made (although for calendar year 2020, the due date is 2/1/2021 due to the weekend).
Form 1099-MISC is to be filed with the IRS by February 28th of the year following the calendar year when payments were made (although for calendar year 2020, the due date is 3/1/2021 due to the weekend).
BOTH forms are due to the recipient by January 31st of the year following the calendar year when payments were made.
What Information to Report
You will need to report the recipient’s legal name, related tax ID#, address, and amount paid. We recommend obtaining a completed form W-9 annually from all vendors and independent contractors BEFORE issuing them a check.