1099-MISC vs 1099-NEC: The Easiest Guide You'll Find
Back in 2020, the IRS decided to shake things up by bringing back the 1099-NEC form, which hadn't been used since 1982. Why? They wanted to make life easier for businesses and contractors by separating different types of payments into two distinct forms.
Now we've got both the 1099-MISC and 1099-NEC forms, and you're probably confused by which form you need to use. In this article, I'll break down everything you need to know about 1099-MISC vs 1099-NEC in simple language you can actually understand.
1099-MISC vs 1099-NEC: The Most Important Things to Know
The 1099-NEC is specifically for reporting independent contractor payments and other self-employment income of $600 or more
The 1099-MISC now mainly handles other types of payments like rent, royalties, and prizes
Different filing deadlines apply: 1099-NEC is due January 31, and 1099-MISC is due February 28 (paper) or March 31 (electronic)
What Is a 1099-NEC vs MISC?
Even though these forms split up in 2020, both are still very much in use today. They just serve different purposes now, and knowing which one to use can save you from headaches down the road.
What Is a Form 1099-NEC?
Think of the 1099-NEC as the "freelancer form."
If you're paying someone for services in your trade or business, 1099-NEC is probably the form you need. It's used to report payments of $600 or more to independent contractors, freelancers, and other self-employed individuals.
The key things you need to know:
Due date: January 31
Reporting threshold: $600 or more in payments (per year)
Used for: Services performed by independent contractors, freelancers, gig workers, and other self-employed individuals
Common examples: Hiring a website designer, copywriter, social media manager, or another independent service provider for your business
Keep in mind that you probably won't need a 1099 Form if you're paying an S-Corp (unless you're paying for legal services, medical and health care payments, or fishing boat proceeds).
What Is a Form 1099-MISC?
The 1099-MISC is now the "everything else" form. It handles all those other types of payments that aren't for services provided by independent contractors.
Here's what you need to know:
Due date: February 28 (paper) or March 31 (electronic)
Reporting threshold: Varies by payment type ($600 for most)
Used for: Report payments like rent, royalties, prizes and awards, medical payments, crop insurance proceeds, and other miscellaneous income
Common examples: Office rent payments, royalties for intellectual property
Form 1099-MISC vs 1099-NEC
Let's break down the key differences between these two forms.
Filing Deadlines
1099-NEC: January 31 (both to recipient and IRS)
1099-MISC: January 31 (to recipient), February 28 (paper to IRS), March 31 (electronic to IRS)
Payment Types
1099-NEC: Independent contractor income/non-employee compensation
1099-MISC: Rent, royalties, prizes, medical payments, attorney fees, broker payments, etc.
Reporting Thresholds
1099-NEC: $600 for all payments
1099-MISC: Varies ($600 for most, but $10 for royalties)
When to Use Form 1099-NEC vs MISC
You should use Form 1099-NEC when you've hired independent contractors to perform services for your business.
These are professionals who work on a project basis or provide ongoing services but aren't on your payroll. They maintain control over how and when they complete the work. They often work with multiple clients, not just you.
Examples:
A web designer creating your company website
A virtual assistant handling your email and scheduling
A social media manager running your accounts
A freelance content writer creating blog content
A graphic designer making your marketing materials
You might work with these independent professionals once or repeatedly throughout the year. Either way, if you paid them more than $600, you have to file a 1099-NEC.
Keep in mind that that $600 threshold is for the entire year, not per project.
Let's say you hired a graphic designer who did three projects for you: one for $250, another for $150, and a third for $300. Even though no single project hit $600, you'd still need to issue a 1099-NEC because the total for the year ($700) exceeded the threshold.
The IRS looks at the total amount you paid someone during the tax year, not how much each individual job cost. You need to keep track of all payments to each contractor throughout the year because small projects add up!
When to Use Form 1099-MISC vs 1099 NEC
As a small business owner, you should use Form 1099-MISC if you're paying rent for business-related space or equipment. This includes any rental payments for property or machinery used in your business operations.
Examples:
Office space in a commercial building
Storage unit rentals
Equipment leasing payments
Parking space rentals
Conference room rentals
If you've made royalty payments for intellectual property or gave out prizes or awards, you also need to file Form 1099-MISC by the deadline.
Attorney payments (even if you've made them to an S-Corp, which is a scenario that typically doesn't require a 1099 Form), must be reported on a 1099-MISC when they meet the threshold. This is a special category with its own rules.
Examples include legal consultation fees, lawsuit settlement payments, contract review fees, and other legal services.
How to File Form 1099-NEC
Filing a 1099-NEC is a pretty straightforward process. Here's what you need to do:
Collect W-9 forms from your contractors (do this before paying them!)
Calculate total payments made during the tax year
Complete Form 1099-NEC using your contractor's information from their W-9 (if they meet the $600 threshold)
Send Copy A to the IRS by January 31
Provide Copy B to your contractor by January 31
Keep Copy C for your records
If you still have questions, learn more about whether or not you need to send someone a 1099.
How to File Form 1099-MISC
The process is similar to filing a 1099-NEC, but with different deadlines:
Gather W-9 forms from payment recipients
Calculate total payments for each category
Complete Form 1099-MISC
Send Copy A to the IRS by February 28 (paper) or March 31 (electronic)
Provide Copy B to recipients by January 31
Keep Copy C for your records
Learn more about tax compliance as a business owner.
What Are the Penalties for Not Filing Forms 1099-NEC and MISC?
Let's talk about what happens if you miss those filing deadlines (spoiler alert: the IRS isn't too happy about it).
For 2024, if you're just a little late, you might get away with a $60 fine per form. But the longer you wait, the worse it gets, and the penalties can climb all the way up to $330 per form.
If the IRS (Internal Revenue Service) thinks you're deliberately ignoring the rules, you're looking at a minimum penalty of $660 per form or 10% of the income you should have reported, whichever is more.
In other words, it's essential to file Forms 1099-NEC and MISC on time.
FAQs
What to Do If I Filed a 1099-MISC instead of 1099-NEC?
If you filed a 1099-MISC instead of a 1099-NEC, you'll need to file a corrected return using the proper form. You'll need to void the incorrect 1099-MISC and submit a new 1099-NEC. The sooner you correct the error, the less likely you are to face penalties from the IRS.
Is 1099-NEC the Same as Self-Employment?
Not exactly, but they're closely related. Receiving a 1099-NEC usually means you're self-employed, but not everyone who's self-employed receives 1099-NECs. For example, if you're self-employed but no single client paid you $600 or more per year, you might not receive any 1099-NECs.
What Is the Tax Rate on 1099-MISC Income?
There's no special tax rate for 1099-MISC income. It's taxed as regular income at your normal tax bracket. But if it's rental income or royalties, different tax rules might apply. Always consult with a tax professional for your specific situation.
Which 1099 Form Do I Need for Independent Contractors?
Use Form 1099-NEC for independent contractors. This form was specifically brought back in 2020 for reporting non-employee compensation, which is exactly what you're paying to independent contractors.
Do Accountants Get a 1099-NEC or MISC?
Typically, accountants who work as independent contractors receive a 1099-NEC. If they're providing professional services and aren't your employee, their payments should be reported on Form 1099-NEC.
Do Vendors Get a 1099-MISC?
It depends on what you're paying them for. If you're paying for goods, generally no 1099 is required. If you're paying for services, use a 1099-NEC. If you're paying rent to the vendor, use a 1099-MISC.
What If I Received a 1099-NEC But I'm Not Self-Employed?
This could be a misclassification. If you believe you should be classified as an employee instead of an independent contractor, discuss this with the payer and consider consulting with a tax professional or the IRS. It's a serious offense for employers to misclassify their employees as independent contractors.
Does 1099-NEC Get Reported to the IRS?
Yes! The IRS receives Copy A of your 1099-NEC directly from the payer. They use this information to verify the income you report on your tax return.
Does a 1099-NEC Mean You Have to Pay Taxes?
Yes, income reported on a 1099-NEC is taxable. There's no withheld federal income tax from these payments (unlike a W-2 job where your employer handles that for you). This means you're responsible for both federal income tax and self-employment tax on this money. The good news is that you can deduct your business expenses to reduce your taxable income.
Why Would an Employee Get a 1099-NEC?
Generally, employees shouldn't receive a 1099-NEC – they should receive a W-2. 1099-NEC is used to report independent contractor income. If you're getting both forms from the same company, this could indicate a classification error that needs to be addressed.
What Deductions Can I Claim for 1099-NEC?
You can deduct ordinary and necessary business expenses related to your 1099-NEC income. This might include office supplies, business travel, professional development, home office expenses, and more. Make sure to keep good records of all business expenses to be able to claim all of the deductions you're entitled to.
What Are the Exemptions for 1099-NEC?
You don't need to file a 1099-NEC for payments under $600 (per year), payments to S-corporations (with some exceptions), or payments for merchandise. Also, payments for personal services (not business-related) don't require a 1099-NEC.
Find Clarity in Tax Season with Desi Tax Service®
As a business owner, you're wearing approximately 5 million hats. You didn't start your business to become a tax expert, so let us handle all the legwork for you!
Learn more about our monthly bookkeeping and tax services to comply with legal requirements and start saving money you didn't know you had.
