Form 1099-NEC and Form 1099-MISC
Prior to tax year 2020, businesses typically filed Form 1099-MISC to report payments totaling $600 or more to a nonemployee for certain payments from the trade or business. These payments generally represent nonemployee compensation and, up until now, would typically appear in Box 7 of 1099-MISC. Beginning with tax year 2020, the 1099-MISC has been redesigned due to the creation of Form 1099-NEC. Employers will no longer report nonemployee compensation, such as payments to independent contractors, on Form 1099-MISC.
Beginning with tax year 2020, employers must use Form 1099-NEC to report nonemployee compensation. If the following four conditions are met, you must generally report a payment as nonemployee compensation:
- You made the payment to someone who is not your employee.
- You made the payment for services rendered in the course of your trade or business (including government agencies and nonprofit organizations).
- You made the payment to 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 (i.e., attorneys and accountants), and commissions paid to nonemployee salespersons.
Employers are required to furnish Form 1099-NEC to the payee and file copies with the IRS by January 31.
According to the IRS, beginning with tax year 2020, you should prepare Form 1099-MISC for each person to whom you have paid the following in the course of your business during the year:
- At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
- At least $600 for the following:
- 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.
- Payments for a legal settlement
- (Attorney Services are reportable on Form 1099-NEC)
- Section 409A deferrals.
- Nonqualified deferred compensation.
Employers must furnish the Form 1099-MISC to the recipient by January 31.
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