Form 1099-NEC: What Is It and What Do You Do With It?

Form 1099-NEC reports income that companies pay to their independent contractors. Here’s more about the form and what you need to do with it.

This post is provided for general information only. Please confirm the details and circumstances of your unique situation with your tax accountant or other appropriate advisor before taking action.

What is Form 1099-NEC for?

The NEC in Form 1099-NEC stands for Non-Employee Compensation. That’s income earned by sole proprietors, freelancers, independent contractors, and other self-employed people.

Tax Form 1099-NEC is used for income that used to be reported in Box 7 of Form 1099-MISC.

Note: If you’re paid electronically, you may receive Form 1099-K instead of Form 1099-NEC.

Who has to issue Form 1099-NEC?

The rules for Form 1099-NEC are the same as they were for Form 1099-MISC with non-employee compensation in Box 7. It’s just a minor paperwork change.

Generally, a company needs to issue a Form 1099-NEC if it paid an independent contractor $600 or more during the tax year and the payment is not reportable on a Form 1099-K. See the instructions for exceptions.

What do you do if you get a Form 1099-NEC?

File your taxes as you would have when you received a 1099-MISC. That will generally mean completing a Schedule C.

Note: In some cases, you may get a Form 1099-NEC for income that isn’t subject to federal income tax or that you have deductions to offset. Getting a 1099 doesn’t mean you have to pay taxes on the full amount of the 1099.

Why did the IRS add Form 1099-NEC?

Form 1099-NEC actually used to be a standalone form prior to 1983. That’s when non-employee compensation moved to Form 1099-MISC.

One of the biggest problems with having non-employee compensation on Form 1099-MISC is that it meant different deadlines for Form 1099-MISC depending on what was reported on it. A Form 1099-MISC with non-employee compensation in Box 7 is due to the IRS and contractor on January 31st. Other Form 1099-MISCs are due on March 31st.

In addition to creating confusion, it also caused technical problems at the IRS trying to track whether forms were on time when payers bundled different types of Form 1099-MISC together.

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