1099 NEC vs 1099 MISCWhat are the Form Differences?

Did you receive income other than salaries and wages?

Are you an independent contractor that does work outside of the usual employer-employee relationship?

Do you do part-time freelance gigs outside of your main job?

Or are you a full-time freelancer that does a specific job that you are contracted for?

We could also flip the script.

Have you been employing the services of an individual who is not your employee?

Do you regularly contract independent contractors to do certain jobs for your business?

Or did your business make income payments to a individual who is a goods or service provider?

If your answer to any of the questions above is “yes”, then you’re probably already familiar with IRS Form 1099.

Or more specifically, Form 1099-NEC.

But if you’re not, that may be because 1099-NEC is a fairly new 1099 form, only introduced in 2020.

Or more like re-introduced as it was already introduced decades ago, particularly in 1982.

But I’m sure that you’re not here for a history lesson.

Rather, you want to know what’s the deal with this fairly new 1099 form.

And by extension, you also want to know how it’s different from IRS form 1099-MISC.

Spoiler alert: these two forms, particularly 1099-NEC and 1099-MISC, are different IRS forms.

Whether you’re an independent contractor or someone who hires one, it’s important for you to distinguish between the two forms.

You’ll have to know when it is appropriate to use a 1099-NEC form, as well as a 1099-MISC form.

If you already know what these forms are, you can still learn from this article.

We’ll be discussing what each form does, and what to do when you receive one (as an independent contractor).

We will also be discussing the deadline for submission of each form, as well as the penalties for late submissions.

Let’s get started!

What is IRS Form 1099-NEC?

Source: Form 1099-NEC

In a nutshell, a 1099-NEC is an information return that reports non-employee compensation.

It reports all the income payments made by an individual or entity to an independent contractor (or freelancer or self-employed individual).

For example, if you employ the services of a graphics artist to do some graphics job for your business, then whatever you pay him/her is non-employee compensation.

You report all of the income payments you made to said graphics artist within the year in a 1099-NEC form.

You then submit a copy to the IRS and the graphics artist.

On the other side of the coin, a Form 1099-NEC is a supporting document that an independent contractor will use in filing his/her Form 1040.

If the 1099-NEC states that tax has been withheld, the independent contractor can use it to claim tax credits.

That said, just because an income payment was made to an independent contractor doesn’t automatically mean that the payor will have to submit a 1099-NEC form.

Generally, a payor only has to submit a 1099-NEC form if the cumulative income payments made to an independent contractor within the year reach at least $600.

This applies to each client-independent contractor relationship.

A reminder to independent contractors: just because you didn’t receive a 1099-NEC form doesn’t mean that you don’t have to report the income payments you received from concerned clients.

Any income payment you receive will have to be reported to the IRS.

Aside from non-employee compensation, here are the other income items that can be found on a 1099-NEC form:

• Cash payments made for fish (or other aquatic life) purchased from anyone engaged in the trade or business of catching fish; and
• Payments made to an attorney for his/her services

When is IRS Form 1099-NEC required?

As I’ve already mentioned, a payor will only have to submit a 1099-NEC form if the cumulative income payments made to an independent contractor within the year reach at least $600.

However, if the independent contractor is a C corporation or S corporation (or an LLC registered as either), this rule does not apply.

That’s because you don’t use a 1099-NEC for income payments made to C corporations or S corporations.

Be sure to not file a 1099-NEC for your employees.

You report employee compensation on a Form W-2.

Be careful with this as misclassifying employees as contractors carries significant penalties.

Who’s responsible for filing Form 1099-NEC with the IRS?

It is the payor’s responsibility to file a copy of the 1099-NEC form with the IRS.

Additionally, the payor will also have to provide a copy to the concerned independent contractor.

The due date for filing a copy of the 1099-NEC with the IRS is January 31 of the following year.

If January 31 does not fall on a business day, then the due date will be moved to the next business day.

Likewise, the due date for providing a copy of the 1099-NEC to the independent contractor is January 31 of the following year.

Be mindful of these due dates as there’s a penalty for late submissions:

• If the 1099-NEC form was submitted within 30 days after the due date, the penalty for late submission is $50
• For late submissions made more than 30 days but before August 1, the penalty for late submission is $110
• For late submissions made on or after August 1, the penalty for late submission is $280

If you submit a copy of the 1099-NEC form on time, there are no payments.

If you, for whatever reason, are unable to file a copy with the IRS on time, you can request an extension by submitting Form 8809.

The extension only applies to copies that you file with the IRS.

You still have to provide your independent contractor with his/her copy of the 1099-NEC form.

What is IRS Form 1099-MISC?

Source: Form 1099-MISC

In contrast, Form 1099-MISC is a more inclusive 1099 form.

It covers a wider range of income payments when we compare it to IRS Form 1099-NEC.

Before the reintroduction of Form 1099-NEC, Form 1099-MISC also covered non-employee compensation.

Before 2020, independent contractors were provided 1099-MISC forms for income payments made for goods and services they provided.

Obviously, that’s no longer the case with the reintroduction of Form 1099-NEC.

Here are the income payments that a Form 1099-MISC captures:

• At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
• A cumulative total of at least $600 during the year (for each payee):
• Rents
• Prizes and awards that are not for services performed (except those given/awarded to your employees)
• Other income payments
• Medical and health care payments
• Crop insurance proceeds
• Generally, the cash paid from a notional principal contract to an individual, partnership, or estate
• Payments to an attorney in connection with legal services (e.g. payments made to an attorney in a settlement agreement)
• Any fishing boat proceeds; In addition, report cash payments of up to $100 per trip that are contingent on a minimum catch and are paid solely for additional duties (such as mate, engineer, or cook) for which additional cash payments are traditional in the industry
• Any excess golden parachute payments
• Section 409A deferrals
• Nonqualified deferred compensation
• For Box 7, enter an “X” if you made direct sales totaling $5,000 or more consumer products to the recipient for resale (sales made to a permanent retail establishment are not included). Do not enter a dollar amount on it

Take note that income payments made to an attorney you report on a 1099-MISC form aren’t the same as those to you report on a 1099-NEC form.

Who’s responsible for filing Form 1099-MISC with the IRS?

It is the payor’s responsibility to file a copy of the 1099-MISC form with the IRS.

Additionally, the payor will also have to provide a copy to the payee.

The due date for filing a copy of the 1099-MISC with the IRS is March 1 of the following year for paper filing.

For electronic filing, the due date is March 31 of the following year.

If either date does not fall on a business day, then the due date will be moved to the next business day.

The payor has to provide a copy of the 1099-MISC to the payee on or before January 31 of the following year.

Be mindful of these due dates as there’s a penalty for late submissions:

• If the 1099-MISC form was submitted within 30 days after the due date, the penalty for late submission is $50
• For late submissions made more than 30 days but before August 1, the penalty for late submission is $110
• For late submissions made on or after August 1, the penalty for late submission is $280

Did you notice that the penalty rates are the same as those of the 1099-NEC form? That’s because these penalties apply to all late 1099 forms.

Form 1099-NEC vs Form 1099-MISC

The income payments covered by a 1099-NEC form are different from that of a 1099-MISC form.

Any income payments made to independent contractors, freelancers, and self-employed individuals, are reported in a 1099-NEC form.

In short, you report any non-employee compensation on a 1099-NEC form.

On the other hand, a 1099-MISC form covers more types of income payments.

Most of them are passive income such as prizes, awards, etc.

So you should not expect to find information about an individual’s non-employee compensation on a 1099-MISC form (not anymore since 2020).

Likewise, you can’t find information about an individual’s passive income on a 1099-NEC form.

Do note that while both forms report income payments made to an attorney, what each form covers is different.

1099-NEC covers income payments made to an attorney for his/her services as one.

On the other hand, 1099-MISC covers income payments made to an attorney that are related to legal services (e.g. those made in a settlement agreement).

Form 1099-NEC wasn’t meant to entirely replace Form 1099-MISC.

Rather, it serves to segregate non-employee compensation from other types of income payments.

The rise of revenue from gigs and freelance jobs may have prompted the IRS to reintroduce Form 1099-NEC.

Another difference between the two forms is their due dates.

The due date for the submission of 1099-NEC is earlier.

You have to submit a copy of the 1099-NEC form on or before January 31 of the following.

This applies to both paper and electronic filing.

The due date for the submission of 1099-MISC is much later.

For paper filing, you need to submit a copy of the 1099-MISC form on or before March 1 of the following year.

For electronic filing, the due date is on or before March 31 of the following year.