What’s Form 1099-NEC?

Form 1099-NEC will replace Form 1099-MISC for many taxpayers. It will first be used during the 2020 tax season.

What is Form 1099-NEC for?

Form 1099-NEC is the new form for reporting non-employee compensation. That’s income earned by sole proprietors, freelancers, independent contractors, and other self-employed people that used to be reported in Box 7 of Form 1099-MISC. There are no tax changes; it’s just a new form.

When does Form 1099-NEC start?

Form 1099-NEC will debut for the 2020 tax year. That’s for money earned during 2020 with taxes filed in April 2021. It is not for 2019 income filed in April 2020. However, you may see references to Form 1099-NEC when you’re looking up instructions for Form 1099-MISC or Form W9.

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 was 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.

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, you need to issue a Form 1099-NEC if you pay an independent contractor $600 or more during the 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.

It’s possible the IRS may also rearrange Form 1040, but there are no changes in your reporting requirements or what you owe.

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