- March 7, 2023
The Internal Revenue Service makes use of both 1099-MISC and 1099-NEC to report the taxable payments that are made to the non-employees. The IRS tax Form 1099-MISC is used to report certain expenses that are not subject to self-employment tax, such as rent and prizes. The tax Form 1099-NEC is used to report non-employee compensation that is likely subject to self-employment tax. The filing deadline for both these tax Forms is January 31st of the tax year. Form 1099-MISC is used to record payments such as prizes, rent, medical expenses, and award compensation. Form 1099-NEC is used to report costs such as contractor and freelancer incomes.
Difference between Form 1099-MISC and Form 1099-NEC
Both the tax Forms 1099-NEC and Form 1099-MISC are information return tax forms to report to the IRS. There are sure differences between these tax Forms. 1099- NEC is used to report non-employee compensation to the IRS. If the company pays its workers for their service and if these employees are not their regular W-2 employees, then the organization would use form 1099-NEC to report the wages paid to them to the IRS. In short, payments to contingent workers are reported in Form 1099-NEC.
The IRS tax Form 1099-MISC reports miscellaneous income that will not fit in the other tax Forms. Companies will not use Form 1099- MISC to report non-employee compensation. Form 1099-MISC is used for various forms of income, and box 7 of this tax Form is now dedicated to reporting direct sales of $5000. One common thing about this tax Form is that they both belong to the 1099 category. They are both used to report entirely different types of income.
Who should file Form 1099- NEC?
If a company pays its non-employees $600 or more within the tax year for their services, then the employees should file Form 1099-NEC. However, this doesn’t apply to international contractors based out of the US. Form 1099-NEC applies to the payments made toward non-employees.
Non-employees could be anyone that the company has hired on a contract basis to complete a project for the company. For example, freelance writers who work for a company, experts who offer their consultation on a project, payment for attorneys for rendering their service, etc. If the worker is not on the regular payroll of a business, then they will receive Form 1099-NEC rather than W-2 Form.
Instead of hiring an individual contractor, if the business has contracted an estate, corporation, or partnership, then they would still use Form 1099-NEC to report the payments. Non-employee compensation not just corresponds to direct revenue but also includes commissions and benefits.
Who files Form 1099- MISC?
Form 1099-NEC has replaced box seven on Form 1099-MISC. Taxpayers should use Form 1099-MISC to report types of non-employment income such as royalties, rent payments, prizes, and awards, crop insurance proceeds, fishing boat proceeds, substitute dividends, gross proceeds paid to attorneys, etc. $600 is the cut-off that necessitates reporting income on this tax Form. When it comes to royalties, the threshold is only $10.
Some businesses may have to file both 1099-MISC and 1099-NEC Tax forms depending on the type of payment that they have paid, to different contractors. The deadline to file Form 1099-NEC is January 31st of the tax year for both paper and electronic filing. The deadline for filing Form 1099-MISC with the IRS is March 31st for filing electronically and March 1st for paper filing.
