What Is The Difference Between 1099 MISC And 1099 NEC?
1099 misc forms are something you may have come across if you worked as a freelancer or owner of a small business before 2020. However, the IRS introduced the 1099 NEC form for independent contractors to fill out to report their income. This income is referred to as “non-employee compensation”.
In this guide, we’ll be taking you through everything you need to know about 1099 misc forms and 1099 NEC forms, and their differences.
What is the 1099 misc form?
The first thing that we need to discuss before delving into the differences is what each form actually means. Firstly, we’ll discuss the 1099 misc form. Before 2020, the 1099 misc form was used as the form to report income for those who own small businesses or work as freelancers. However, after the IRS introduced the 1099 NEC form in 2020, the 1099 misc form is used to report miscellaneous income such as attorney payments or rent.
If you need to report your income as a freelancer or small business owner, you would not fill out a 1099 NEC form and not a 1099 misc form.
What is the 1099 NEC form?
Now that you know what the 1099 misc form is, you should also know what the 1099 NEC form actually means. As stated before, it is a form that is used to report income for those who own a small business or work as contractual freelancers. This basically means anyone who is not on a payroll assigned by someone else in their line of work.
The 1099 NEC form was introduced in 2020 and is the primary form needed to report any income made by independent contractors, or those who are self-employed.
What are the differences between the forms?
So, what is the main difference between 1099 misc and the 1099 NEC forms? The main difference between them is something we have touched on already. 1099 misc used to be the sole form for the self-employed to report their income but is not used to report miscellaneous income only, while the 1099 NEC form is specifically used for those who are self-employed to report their income.
Another difference between the two forms is that the deadlines to fill the forms out is different. The 1099 NEC is due to be completed and submitted by January 31st following the previous tax year. In instances where January 31st is not a working day, the deadline will be forwarded to the following business day.
On the other hand, the 1099 misc form is due to be submitted by March 1st when filed by paper and March 31st when filed electronically. Like the 1099 NEC, the deadline day is forwarded to the following business day if the actual deadline day is not on a working day.
When do I need to fill in a 1099 NEC form?
There are certain criteria to follow when it comes to filling in a 1099 NEC form. Here are just some of the instances in which you would need to fill the report in:
If you paid a contractor over $600 within the tax year, then you will need to fill out a 1099 NEC form to report your income. If the contractor is currently registered with either a C corporation or an S corporation, then filling out a 1099 NEC form is not required as the information will be available on the contractor’s W-9 form.
It’s important to remember that you do not submit a 1099 NEC form for your employees. The form needed to fill out for employees is a W-2 form as this will report any wages, tips, or compensation made throughout the tax year.
If you do submit the wrong form in either case above, it can result in penalties as this could be misconstrued as misclassifying your employees for contractors, so it’s essential to make sure you are filling out the correct documentation to prevent this from happening.
Who needs to fill in the 1099 NEC form?
It is the business owner’s responsibility to fill in the 1099 NEC form and submit it to the IRS, as well as send a copy to any contractors that you may have hired. So, whether you are a freelancer or own a small business, you need to make sure that you are filling in the correct forms with the IRS to report all income.
Also read: Do 1099 Employees Get Pay Stubs?
Filing a 1099 NEC form
So, now you need to file a 1099 NEC form, and you’re unsure how to go about it. The 1099 NEC form requires two separate copies that contain the same information known as Copy A and Copy B. Copy A will be submitted to the IRS, while Copy B is sent to the contractor.
If you hired a contractor and paid them over $600 within the tax year, then you are responsible for submitting both Copy A and Copy B to the IRS and contractor, respectively. However, if you are a contractor who has received Copy B, then you don’t have to worry about submitting this Copy to the IRS, but you do have the right to request a copy from your client.
Also read: My Options If I've Lost My W2 Form
Submitting Copy A
As mentioned, Copy A needs to be submitted to the IRS and has a deadline of 31st January, whether it is submitted electronically or by mail.
Submitting Copy B
You will also need to submit Copy B to the contractor. Before you do this, you will need to gain their consent to send them the form electronically. If the contractor does not respond to you within your allocated timeframe or refuses to give this consent, then you will need to mail Copy B to them.
Also read: What is the Form W2?
Although Form 1099 misc used to be the primary form for the self-employed to report any income, it has now been swapped over to the 1099 NEC form since 2020. The 1099 misc form is now used for reporting miscellaneous income such as payments to attorneys or rent, while the 1099 NEC form is used for specifically reporting income if you are self-employed.
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