Form 1099-NEC vs. Form 1099-MISC: How to File Them in 2023
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If you're an independent contractor or a client working with contractors, chances are you've heard about Form 1099-NEC. This is the tax form the Internal Revenue Service (IRS) introduced in 2020 for reporting payments to non-employees and self-employed individuals.
Form 1090-NEC replaces the function of Form 1099-MISC, but Form 1099-MISC isn't gone entirely. Here's our guide to these forms, their differences, and how and when to file each.
What is Form 1099-NEC?
Form 1099-NEC (non-employee compensation) is not really new at all—this form was last used back in 1982, but the IRS reintroduced it in 2020. Going forward, the 1099-NEC is the exclusive form that businesses use to report payments to independent contractors (or freelancers) each tax season.
The reason behind the change
Form 1099-NEC replaces box seven on Form 1099-MISC, which is where clients used to report non-employee forms of compensation. In short—today, if a client pays a non-employee at least $600 within the tax year, they use Form 1099-NEC to report the payments.
A bit of history and background: before 2015, the deadline for filing non-employee compensation forms such as the 1099-MISC was the end of February for paper filing and March 31st for electronic filing.
Meanwhile, IRS Form W-2 (used to report employee compensation) was due on January 31st. This gap between deadlines meant that taxpayers could file taxes and get tax refunds before their non-employee income forms were even reported to the IRS. This led to taxpayers reporting lower compensation than what they actually earned.
In 2015, the IRS enacted the Protecting Americans from Tax Hikes Act, which resolved the underlying date difference by moving the deadline for filers to report non-employee compensation to January 31st, aligning it with the W-2 deadline.
However, other business payments (such as rent) that used the 1099-MISC were still stuck on the old deadline of February 28th or March 31st. This misalignment meant that employers had to issue multiple 1099-MISC forms with different deadlines, making it a confusing time for everyone involved.
Finally, in 2020, the IRS reintroduced Form 1099-NEC, which you now use to report non-employee compensation payments.
Does Form 1099-MISC still exist?
Yes, Form 1099-MISC is the tax form you use to report miscellaneous income.
Because of the change, Form 1099-MISC went through a redesign in 2020 to remove non-employee compensation from its scope. Box seven was previously used to report independent contractor payments. In the redesigned version, however, box seven now serves for reporting direct sales of consumer products worth $5,000 or more aimed for resale. If you got a 1099-MISC with box seven filled in, and it represents your contractor payments, you should request a 1099-NEC slip instead.
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Who needs to file Form 1099-NEC?
If your company, as a client, paid an independent contractor more than $600 during the year, you will file a Form 1099-NEC. Payments you report are those you made in the course of your trade or business. Here are some examples of payments you need to report on the 1099-NEC:
- Professional service fees to architects, designers, accountants, software engineers, attorneys, and law firms
- Fees paid by one professional to another (such as attorney's fees of $600 or more)
- Commissions to non-employee salespeople that are subject to repayment but haven't been repaid in the course of the year
You don't file the 1099-NEC for independent contractors registered as a C corporation or an S corporation.
You also need to file Form 1099-NEC for any individual you have withheld federal income tax for under the backup withholding rules, no matter how much you paid them.
Do employees get a 1099-NEC?
No, you do not give a 1099-NEC to an employee. Employee income like salaries and commissions are reported on the dedicated Form W-2.
Do international contractors get a 1099-NEC?
No, you do not need to give a 1099-NEC to a contractor that does not live in the US. Foreign contractors don't file a US tax return, so they have no need for a 1099. However, you do need to provide a 1099-NEC if the overseas contractor is a US citizen or otherwise has a US tax residency.
You should collect a Form W-8BEN or W-8BEN-E from your international contractor.
A note: If you have US contractors working for you from outside of the US, Deel handles 1099s for this group of contractors too! If your US independent contractors are living abroad, reach out to Deel to learn more about how you can effortlessly handle their 1099 tax forms.
Who needs to file Form 1099-MISC?
The 1099-MISC, like the name implies, is used to report miscellaneous income. File a Form 1099-MISC if you paid more than $600 during a calendar year to an individual or company for the following:
- Rent payments (unless you pay them to real estate agents or property managers)
- Prizes and awards
- Other income payments
- Cash from a notional principal contract to an individual, a partnership, or an estate.
- Fishing boat proceeds
- Medical and health care payments
- Crop insurance proceeds
- Payments to an attorney
- Section 409A deferrals
- Nonqualified deferred compensation
- Gross proceeds paid to an attorney
As with Form 1099-NEC, file a Form 1099-MISC for each person you have withheld federal income tax for under the backup withholding rules regardless of the payment amount.
How to file Form 1099-NEC
Filing the 1099-NEC is the responsibility of the payer.
To get started, your contractor needs to provide you with some information first. Request a completed Form W-9 (Request for Taxpayer Identification Number) from your contractor in order to collect your contractor's tax details.
Once you have your contractor's details, you can proceed with filing Form 1099-NEC with the IRS. There are two copies that payers file: Copy A, which is for the IRS, and Copy B, which is for the contractor. If applicable, you can mail one copy to the state tax department and keep one for your records.
Filing the form can be done either through mail or through an e-file. If you want to submit the form through the mail, you need to request a physical copy from the IRS through their official website. Then, you need to add Form 1096, which summarizes the other forms, as a cover page before filing.
Electronic filing is done with IRS's Filing Information Returns Electronically (FIRE) system. To register with FIRE, request a Transmitter Control Code (TCC), which you do by mailing Form 4419 to the IRS. Make sure to submit Form 4419 at least 30 days before the due date for submitting Form 1099-NEC.
Filing electronically is easier and quicker than doing it by mail. Depending on which state you are in, you can also benefit from states that participate in the FIRE system, which means you won't have to file separately.
Filing deadline for 1099-NEC and 1099-MISC
The general deadline for filing your Form 1099-NEC and Form 1099-MISC to the IRS for the prior year is January 31st. If that happens not to be a business day, the deadline moves to the next business day. The same deadlines apply to delivering a Copy B to the service provider since they will need it for their tax returns.
Don't forget to check your state filing requirements for 1099 forms. Some states, such as Florida, Nevada, New York, Texas, and Washington, ensure that the IRS forwards them relevant electronically filed forms.
The penalties for missing the deadline to submit Form 1099-NEC and 1099-MISC vary and grow depending on how late they are. If you file the forms within the first 30 days after the deadline, the fine will be $50 and increase to $100 if you file before August 1st. If you can't make it on time, it's best to ask for an extension—do this by submitting Form 8809.
Note: If you're unsure how to complete or file your tax forms, consult a CPA or tax professional who can ensure you've done everything correctly. If you're a small business owner, it can save a lot of time and effort.
1099 form deadlines for 2023
The deadline to file Form 1099-NEC is January 31, 2023. You can file electronically or on paper. Form 1099-MISC is due on February 28 if filed on paper, and on March 31, 2023, if filed online. Note that there aren't filing extensions for either form. You can view both forms here:
Using Deel to file 1099 forms
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With Deel, you can generate and file your 1099 forms in seconds. Deel's tax feature lets US users collect data, generate tax forms, and file 1099 forms to the IRS directly from the dashboard.
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- What Is IRS Form 1099-MISC?
- What is IRS Form 1099-NEC
- What is IRS Form W-8BEN & W-8BEN-E?
- What Is IRS Form W-4?
- What is IRS Form W-9?
- IRS Forms W-9 vs 1099
Disclaimer: This information is provided for informational purposes and should not be considered tax advice or a substitute for official IRS publications. Consult a tax professional for help.