The New 1099-NEC
1099-NEC will change the way you file.
If you’re used to filing the 1099-MISC and you claim nonemployee compensation, this year you’ll need to brace for a big shift. In 2020, Form 1099-NEC reports all nonemployee compensation, replacing Box 7 on the 1099-MISC.
Unfair fines and a booming gig economy made this change inevitable
Form 1099-NEC was last used in 1982. The IRS revived it for 2 key reasons.
The PATH Act of 2015 moved the due date for Box 7 up and ended an automatic 30 day filing extension for the 1099-MISC. The result? Businesses like yours trying to meet multiple deadlines for 1 form, mistakenly faced millions in fines.
Meanwhile, tiny Box 7 was bearing the weight of a growing gig economy as use of contract workers and freelancers surged. The 1099-NEC solves both problems.
NEC or MISC—Which Form(s) Do You Need?
What exactly is non-employee compensation? And what payments still need to be reported on the 1099-MISC? Our quick guide gives you the highlights.
|What are you reporting?||1099-NEC||1099-MISC|
|Paid over $600 in compensation to someone who is not your employee for services|
|Paid an individual, partnership, estate or in some cases, a corporation|
|Withheld federal income tax (box 4) under backup witholding rules regardless of payment|
|Royalties, awards & prizes|
|Fishing boat proceeds|
|Medical and health care payments|
|Substitute payments in lieu of dividends or interest|
|Excess golden parachute payments|
|Direct sales of $5,000 or more|
Most Adams Tax users who filed the 1099-MISC in 2019 will need to file a 1099-NEC in 2020.
These businesses will feel the impact of 1099-NEC.
If you haven’t been following the 1099 NEC transition, here’s what you need to know about this important overhaul.
Businesses that Hire Contractors
If your trade or business paid a contractor at least $600 in the previous year, you will need to file the 1099 NEC. That includes payments to:
- nonemployee sales persons earning commissions
- gig workers including
- food delivery services
Direct Sellers and B2B Companies
If you or your sales reps offered products for direct sale at home, online or in other non-store venues, 1099 changes may double your workload.
- Direct sellers must issue Form 1099-MISC for direct sales of $5,000 or more
- They must also report commissions on the 1099-NEC; that’s 2 forms for 1 recipient
If you used any other box on the 1099 MISC last year plus Box 7, you too may need 2 forms.
- You’ll use the 1099-NEC to report nonemployee compensation
- You’ll still need a 1099-MISC to report rents, royalties, medical/healthcare payments and other miscellaneous income payments
Not worth the risk: Failure to file a 1099 can carry a minimum penalty of $560 per 1099 form.
Know the deadlines to avoid devastating penalties.
Though the NEC will greatly simplify filing deadlines, there are still some caution signs to keep in sight.
February 1, 2021
Send copies of Form 1099-NEC to any workers you paid nonemployee compensation to during the year and to the IRS by February 1, 2021.
The IRS warns there is no automatic extension on the 1099-NEC.
You’ll face steep penalties for filing any 1099 late or for failing to file.
Paper filers and e-filers, remember these important dates.
February 1, 2021
1099-MISC Copy B
- Due to your recipients if Box 8 and 10 are empty
March 21, 2021
1099-MISC Copy A & 1096
- Paper forms due to the IRS
February 16, 2021
1099-MISC Copy B
- Due to your recipients if Box 8 and 10 are filled
March 31, 2021
- Transmit to the IRS by March 31
Do's and Don'ts
Avoid these stumbling blocks as you navigate this tax season. Proceed with confidence and caution. Mistakes can be costly.
DO use the right form.
For some categories, it’s easy to be confused. You must report attorney’s fees on the 1099 NEC. You report gross proceeds to attorneys (from lawsuits) on the 1099 MISC. Be certain! For full details, see our IRS Resources page with links to IRS Instructions
DO remember that the 1099-MISC has changed too.
Yes, there is still a Box 7 on the 1099 MISC, but it now reports payer made direct sales of $5,000 or more. The contents of 8 boxes have been shuffled around for this redesign.
Don’t assume you can file late (or fail to file).
There are no automatic extensions for the 1099 NEC. The IRS may grant one 30-day extension for an extreme hardship (a death or catastrophic event). Otherwise, fines for filing late range from $50 to $270 per 1099. Intentionally file late, face penalties of $560 per statement, no max.
Don’t provide incorrect information.
If a recipient provides an incorrect name or TIN and you submit both a 1099 NEC and a 1099 MISC, you’ll face double the fines for every error. It’s critical this year more than ever to verify your data.
See the New 1099s
Get to know your 2020 1099-NEC and 1099-MISC tax forms.
Here are additional resources to help you find the right form.