IRS Form 1099 MISC Vs new 1099 NEC: Still, using 199 MISC box 7 to report non-employee compensation? As per the IRS 2020 instructions, the taxpayer must use a new 1099 NEC Form to report contractor income. or else the IRS imposes heavy and hefty penalties.
Getting confused about 1099 MISC and 1099 NEC? Don’t worry! We will let you know about the major differences between IRS Form 1099 MISC and 1099 NEC. Furthermore, we provide you information about the use of 1099 information return forms to the Internal Revenue Service.
Table of Contents
- What is the Use of 1099 Tax Forms to the IRS?
- What is Form 1099 MISC?
- Purpose of New 1099 NEC Form
- Difference between Form 1099 MISC and 1099 NEC
- Examples of 1099 MISC and 1099 NEC
- When to File Federal 1099 MISC and Form 1099 NEC?
What is the Use of 1099 Tax Forms to the IRS?
Generally, 1099 Tax Forms are also called “Information Return Forms”. These tax forms provide information regarding the different types of income paid to an individual outside the regular salary in a tax year. The IRS uses the information provided through 1099 Forms to check whether the contractors are reporting 1099 income on their tax returns or not. In addition to this, the IRS also checks whether the information provided by the business owners correct. Otherwise, the payer may have the chance to pay penalties and fines.
For example: If the taxpayer reports the income paid to a contractor throughout the tax year as $600, but the taxpayer paid below the minimum threshold. Then the taxpayer has the risk of facing penalties. Because the contractor includes the income on their tax returns which the IRS checks and notifies the payer to pay the penalty for fraudulent filing 1099 returns.
What is Form 1099 MISC?
1099 MISC Form used mostly to report certain types of “miscellaneous income”. This includes:
- At least $600 paid for rent, prizes and rewards, medical and care payments, crop insurance proceeds, other aquatic life you sold for resale.
- $10 or more paid in royalties or broker payments instead of dividends, or tax-exempt interest.
- At least $5,000 for consumer products sold anywhere other than a permanent retail establishment.
Furthermore, Federal 1099 MISC also reports the income paid to an attorney for providing information against criminal activity.
Purpose of New 1099 NEC Form
The main purpose of the 1099 NEC Form to report income paid to non-employees for performing services. Generally, this income was previously reported in 1099 MISC box 7. But due to the PATH Act, the IRS made changes in reporting payments from 1099 MISC box 7 to new Form 1099 NEC. From the 2020 tax year, the business owners who hire non-employees to perform work must use a new 1099 NEC Form to report the payments.
Ensure to report the income which exceeds $600 in a calendar year through the new 1099 NEC Tax Form. The income paid to non-employees below the minimum threshold amount is not reported through the Form. Furthermore, report the payments made to independent contractors on performing services related to business or trade. Payments made for personal use are exempted in reporting on the new Form.
Difference between Form 1099 MISC and 1099 NEC
Given below are the differences between Form 1099 MISC and 1099 NEC:
| Federal 1099 MISC Form | Printable 1099 NEC |
| 1. 1099 MISC Form is used to report miscellaneous incomes such as rent, or payments to attorneys. | 1. Form 1099 NEC is specifically designed to report non-employee compensation. |
| 2. Payments made more than $600 as prizes or rewards, fishing boat proceeds, etc., are reported. | 2. Report payments made to contractors for performing services of $600 or more through the Form. |
| 3. Independent contractors, LLCs, attorneys, etc., receive the 1099 MISC Form. | 3. Non-employees, self-employed individuals, gig workers receive a 1099 NEC Form. |
| 4. The due dates to distribute Copy B and Copy A of the Form are different. | 4. The due date to distribute Copy B and Copy A of the Form are the same. |
| 5. The last date to submit paper forms and electronic forms to the IRS different. | 5. the last date to submit paper forms and electronic forms of 1099 NEC to the IRS is the same. |
Examples of 1099 MISC and 1099 NEC
The examples are given below:
| IRS Form 1099 MISC | Form 1099 NEC |
| 1. When you pay an individual rent for office space, machine rentals, pasture rentals, then you need to issue a 1099 MISC Form. | 1. When you hire an individual to perform work on a course of business or trade, then you need to issue a 1099 NEC Tax Form. |
| 2. If an individual earns an income of $600 or more like a lottery in a tax year, then the individual receives Form 1099 MISC. | 2. If an individual was awarded nearly $600 or more for performing services, then the contractor may receive a 1099 NEC Form. |
| 3. Gross proceeds paid to attorneys for providing information against legal activity considered as miscellaneous income. | 3. Fees paid to attorneys for performing service under criminal activity are considered as non-employee compensation. |
When to File Federal 1099 MISC and Form 1099 NEC?
As per the IRS guidelines, the business owner responsible to file Federal 1099 tax forms within the deadlines. The due date to distribute 1099 MISC Form Copy B to the independent contractor by January 31st every calendar year. Paper file Copy A of the Form to the IRS by February 28th every year. Or else e-file Copy A of 1099 MISC to the IRS by March 31st annually.
The deadline to issue Form 1099 NEC to the IRS and the recipient by January 31st every tax year. Make sure that the deadline is the same for e-filing and paper filing information returns reporting NEC.
Have you got the detailed information about 1099 MISC and 1099 NEC? Then what are you in search of? Form 1099 online provides e-filing 1099 information return forms to the IRS with expedience. The filers can feel hassle-free filing with zero errors. That’s the info about IRS Form 1099 MISC Vs the new 1099 NEC.