In the last few decades, the 1099-MISC form has been used to report certain payments, including non-employee compensation (NEC), to the IRS. Non-employee compensation (NEC) includes the following payment types to independent contractors: fees, commissions, prizes, award-winning, and other forms of compensation for services.
In 2021, the IRS has introduced the new Form 1099-NEC to reporting independent contractor income. Taking quick research, the 1099-NEC is not actually a new form. It was last used in 1982, and after 38 years, this form has been redesigned and bring into use again.
1. What Is Form 1099-NEC?
1099-NEC is a special new form for reporting non-employee compensation - which can be defined as payments to non-payroll individuals on a contractual basis for completing a project or assignment. This will include all independent contractors, gig workers, or self-employed individuals who previously reported their payments in box 7 of the 1099-MISC form.
2. 1099-NEC vs 1099-MISC
The 1099-NEC is now used to report independent contractor income.
The 1099-MISC form is still in use to report miscellaneous income such as rent or lawsuit settlement agreement.
Although 1099-MISC is still in use, contractor’s payments made in 2020 and thereafter will be reported on the new 1099-NEC form. The due date of 1099-NEC is January 31st of the year following the applicable tax year. If January 31st does not fall on a business day, the due date will be carried over to the next business day.
For this upcoming tax season, January 31st falls on Sunday, pushing the due dates to the next business day, which is Monday, February 1st.
3. Who requires a Form 1099-NEC?
The general rule is that you must issue a Form 1099-NEC to any vendors or sub-contractors you have paid at least $600 in a tax year. However, if the independent contractor is registered as a C corporation or S corporation, a 1099-NEC will not be required.
Note: Do not use Form 1099-NEC to report payments made for personal purposes.
4. Who requires a Form 1099-MISC?
If your business paid an individual or LLC (an LLC is only considered to be a corporation if it has elected to be taxed as a corporation) at least $600 during the year in rent paid, legal settlements, you are required to fill a Form 1099-MISC.
If you, as a business owner, see that you cannot handle accounting on your own, consider hiring an accountancy service for contractors to help you with it.
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