What is 1099-NEC and Its Significance?

Summary of IRS Form 1099-NEC: A Concise Explanation

The Internal Revenue Service (IRS) frequently updates and modifies the available 1099 tax forms. One significant change in recent times is the reintroduction of Form 1099-NEC, which the IRS initially utilized in the 1980s before being discontinued for several years. The IRS revived this form for the tax year 2020 and onwards. Previously, Form 1099-MISC was employed to report nonemployee compensation, but the form had varying deadlines based on the payment type, creating confusion for taxpayers. To resolve this, all nonemployee compensation is now reported on Form 1099-NEC.

What is IRS Form 1099 NEC?

IRS Form 1099-NEC is utilized to report nonemployee compensation. A Form 1099-NEC should be completed for each individual:

• To whom you paid at least $600 during the course of business during the year for:
  • Services performed by someone who is not an employee (including parts and materials), or
  • Payments to an attorney.
• From whom you have withheld any federal income tax under backup withholding rules, regardless of the amount of payment.

Note: 1099-NEC and 1099-MISC can be used to report sales totaling $5,000 or more of consumer products to a person on a buy-sell, deposit-commission, or other commission basis for resale.

Until the tax year 2019, nonemployee compensation was reported on Form 1099-MISC in Box 7.   However, from 2020 onwards, it should be reported separately on Form 1099-NEC.

Why did the IRS reintroduce Form 1099-NEC?

In reality, the 1099-NEC is not a new form. It was active until 1982 and has now returned to prominence after the tax year 2020.

The IRS brought back the 1099-NEC form to resolve the ambiguity surrounding the filing deadline for 1099-MISC with nonemployee compensation. Prior to 2015, the due date for submitting 1099 MISC, which included nonemployee compensation and other miscellaneous payments, was February 28^th.

In 2015, the enactment of the Protecting Americans from Tax Hikes Act (PATH Act) altered the deadline to January 31^st, specifically for filing 1099-MISC with nonemployee compensation.

Before the tax year 2020, payers who used 1099-MISC to report miscellaneous payments were required to submit the form to the IRS by January 31^st. If 1099-MISC was employed to report payments other than nonemployee compensation, the submission deadline was February 28^th for paper filing and March 31^st for electronic filing.

The presence of two distinct deadlines for the same form led to confusion among payers and vendors. In fact, the IRS regarded returns as late if they were received after January 31^st. To eliminate this ambiguity, the IRS opted to reintroduce the 1099-NEC. This decision has provided clarity for payers, vendors, and the IRS alike. Consequently, payers can now decide whether to file 1099 NEC or file 1099-MISC based on their reportable payments for tax years beyond 2020.

Who is Required to File Form 1099-NEC?

Form 1099-NEC is mandatory if the payment fulfills any of the following criteria:

• Payments of $600 or more made to someone who is not an employee (including parts and materials)
• Payments made of $600 or more to an attorney
• You have withheld any federal income tax under backup withholding rules, regardless of the amount of payment.

Note: A 1099-NEC may also be used to report sales totaling $5,000 or more of consumer products to a person on a buy-sell, deposit-commission, or other commission basis for resale.

Note: If the filing deadline lands on a Saturday, Sunday, or legal holiday, the due date will automatically be extended to the following business day.

Visit our deadlines article to learn more about Form 1099 due dates.

Most states also have a filing deadline of January 31^st, but some may vary. View our state deadlines post to learn more about the state filing deadlines.

How to E-file Form 1099-NEC?

E-file your Form 1099-NEC with the IRS and the necessary state using BoomTax, an IRS-approved e-file provider that supports e-filing for all 1099 Forms, W2, and ACA Forms.

Watch Our 90-Second Demo

There is no additional fee for filing prior-year 1099 tax forms with BoomTax; you can e-file at the same affordable rate as current-year forms.

1099 penalties may be subject to the following:

• Furnishing incorrect information on a return
• Failure to provide the required information
• Late filing of returns
• Paper filing when required to file electronically (E-file 1099 if you have 10 or more information returns)

The IRS is accustomed to changing rules year-to-year, sometimes even in the middle of the current tax season! This is why having the most accurate information about the IRS requirements and deadlines for filing any Form 1099 is essential. Use reliable tax software to e-file your forms and stay updated on any changes in regulations or deadlines.

Note: IRS recommends that payers utilize the e-file option over paper filing for faster processing.