Your 1099-NEC Refresher
By now, most filers know the 1099 NEC is the only form used to report nonemployee compensation to the IRS. But there are a few new twists this year.
The NEC returns with a revised format, new envelope size, and two new reporting changes to consider for your business this tax season.
Smaller form, smaller envelope for the 1099-NEC
This year, the IRS gives the 1099 NEC a new, smaller 3-per page format that's 8 ½" x 3 ⅔" detached. You’ll need a smaller double-window security envelope to fit the new NEC forms.
Heads up! That means there are 2 sizes of 1099 envelopes this year. Look for 3-up NEC envelopes and standard 2-up MISC formats.
What else is new?
Look for 2 NEC reporting updates in 2021.
You can now use box 2 on Form 1099 NEC OR box 7 on the 1099-MISC to report payer-made sales of $5,000 or more. (This means fewer filers will need both forms.)
You can no longer report cash paid for fish for resale in 1099-NEC, box 1; you’ll use 1099-MISC box 11 instead.
See IRS instructions for complete details.
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 an attorney or person 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|
|Payer-made direct sales of $5,000 or more|
|Royalties, awards & prizes|
|Fishing boat or crop insurance proceeds|
|Medical and health care payments|
|Substitute payments in lieu of dividends or interest|
|Excess golden parachute payments|
This year, business owners will still need to understand who should file the 1099-MISC and who should file the 1099-NEC.
These businesses will file the 1099-NEC in 2021.
Did your company make any of these payments for business or trade? Then you'll need to file the 1099-NEC.
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, you must report your commissions on the 1099-NEC.
- This year, the IRS also allows you to report direct sales of $5,000 or more in box 2 of the NEC, so you'll no longer need both forms.
- OR you can still use box 7 on the 1099-MISC to report direct sales if you don't have commissions to report.
If you have miscellaneous income and nonemployee compensation to report, you will still need both 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.
January 31, 2022
Send copies of Form 1099-NEC to any workers you paid nonemployee compensation to during the year and to the IRS by January 31, 2022.
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.
January 31, 2022
1099-MISC Copy B
- Due to your recipients if Box 8 and 10 are empty
February 28, 2022
1099-MISC Copy A & 1096
- Paper forms due to the IRS
February 15, 2022
1099-MISC Copy B
- Due to your recipients if Box 8 and 10 are filled
March 31, 2022
- 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 changed since 2019. If it's been a while since you've filed a Miscellaneous, refamiliarize yourself with the form.
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 to verify your data.
See the New 1099s
Get to know your 2021 1099-NEC and 1099-MISC tax forms.
Here are additional resources to help you find the right form.