Form 1099 is an IRS form used to report the payment of certain expenses annually to both the recipient and the IRS. Form 1099-MISC is used in the reporting of payments that are not subject to self-employment tax – things like rents and prizes. Form 1099-NEC is used for reporting non-employee compensation that is most likely subject to self-employment tax.
|Sent to recipient||✔||✔|
|Submitted to IRS||✔||✔|
|Filing deadline||Jan. 31||Jan. 31|
|Types of payments recorded||Rents, prizes, medical payments and other awards||Freelancer/contractor income and other payments likely subject to self-employment tax|
IRS Form 1099-MISC is a tax form used by businesses and individuals to report the payment of certain qualifying expenses paid over a calendar year. The form serves as a filing for the IRS as well as a receipt of payments for the payee, which they use in filing their own tax returns.
Form 1099-MISC is most often used to report miscellaneous (hence, MISC) payments that aren’t subject to self-employment tax. This includes things like rent, prizes and awards, legal settlements, and other qualifying reimbursements.
Employers issuing 1099-MISCs are required to have them prepared and filed no later than Jan. 31 for any payee that they pay over $600 in deductible expenses during a calendar year. Employers are also required to send a copy to the individual or business they pay so that the payee can use the 1099 to declare relevant income when filing their taxes.
IRS Form 1099-MISC is very common, especially for individuals and businesses who own investment real estate or regularly buy supplies for clients. This form is used by rental property management companies and companies that award cash prizes or reimburse businesses or individuals for client-related expenses.
These are some common payments reported on Form 1099-MISC:
While a 1099-MISC is frequently used to record certain tax-deductible payments made by businesses or individuals, it’s not used for everything. Most notably, Form 1099-MISC isn’t used when reporting non-employee compensation that is subject to self-employment tax for the payee. For that, you need Form 1099-NEC.
Form 1099-MISC is used to report business-related payments that are not subject to self-employment tax.
Form 1099-NEC is also an IRS form used for the reporting of certain tax-deductible payments by businesses and individuals. “NEC” stands for non-employee compensation, which is what the form is used to report. Specifically, Form 1099-NEC is used by businesses and individuals to report compensation paid to independent contractors that’s subject to self-employment tax.
Like Form 1099-MISC, Form 1099-NEC is also required for any payees whom businesses or individuals pay more than $600 in qualifying payments during a calendar year. And, like Form 1099-MISC, the deadline for preparing and filing Form 1099-NEC is Jan. 31, and a copy must be sent to the payee once it’s filed.
Even if payments are for non-employment compensation, a 1099 may not be required in certain cases, such as if the recipient is a corporation.
IRS Form 1099-NEC is extremely common among freelancers, independent contractors and other independent service providers – really anyone who does more than $600 worth of work for a business client in a year without being employed by that business or individual as a full-time W-2 employee or through a temp agency.
Form 1099-NEC is common in self-employment situations.
Form 1099-NEC is much more common than Form 1099-MISC among the self-employed and for service businesses. It’s important to note, though, that a 1099 (MISC or NEC) is not required in all circumstances. For example, if the company providing the service (the payee) is registered as a corporation, the business or individual employing that service provider does not need to issue a 1099. [Related article: Self-Employed? Everything You Need to Know About Taxes]
Similarly, if the service provider is paid by credit card, the individual or business paying for the service does not need to issue a 1099 because payment is technically being made by the payer’s credit card company.
When completing a 1099, employers are required to include several pieces of information about the payee. This information typically comes from the payee’s Form W-9, which the employer is required to collect from an independent contractor when they start working together.
In the case of both Form 1099-NEC and Form 1099-MISC, there is a process for qualifying to have income reported via 1099, providing the requisite information for the form, having the form prepared and filed, and providing a copy to the payee for use in preparing their own taxes.
Follow these five steps to report income on Form 1099-NEC or 1099-MISC:
If you want to learn more about tracking 1099 income or completing 1099s for qualifying contractors, visit our best accounting software guide. Most accounting software makes it easy to prepare and issue 1099s using information gathered from contractors on their W-9s.