1099-NEC

Prepare your business now for the new 1099

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.

2021 UPDATES

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
Rental income
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.

Who?

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:

accountants
architects
attorneys
consultants
freelancers
nonemployee sales persons earning commissions
gig workers including
- couriers
- drivers
- 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.

1099 Multi-Taskers

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.

When?

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.

1099-NEC Deadline

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.

1099-MISC Deadlines

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

1099-MISC E-Files

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's

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'ts

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.