Form 1099-MISC vs Form 1099-NEC for the Tax Year 2021
For a business of any size, choosing the right tax form is as important as filing the taxes. The IRS has re-introduced a separate form called 1099-NEC during 2020 to report non-employee compensation, which was earlier reported in 1099-MISC in Box 7.
Due to the creation of 1099-NEC, the IRS has revised and rearranged the boxes in the existing form 1099-MISC (Miscellaneous).
Now, if you’re a business owner who hired independent contractors, you may have a few questions like,
- Which form should be filed — 1099-MISC or 1099-NEC?
- Why was 1099-NEC introduced?
- When does it have to be filed?
We are addressing all these questions in this article.
Why was 1099-NEC introduced?
The new 1099-NEC is introduced to eliminate the ambiguity of having two deadlines for the same form, 1099-MISC, to report nonemployee compensation and other miscellaneous payments.
It’s interesting to note that the IRS Form 1099-NEC was in existence until 1982.
In 2015, the IRS/SSA changed the filing deadline for Box 7 revenue (nonemployee compensation) to January 31, but the deadline for reporting miscellaneous payments remained February 28. This created a situation of having two deadlines for the same form, leading to confusion for many businesses.
For the tax year 2020 & beyond, the IRS decided to reintroduce 1099-NEC to report nonemployee compensation. For reporting all other types of payments, the 1099-MISC will still be used.
Criteria to file 1099-NEC
Payers should file 1099-NEC under the following conditions:
- You paid a contractor/vendor at least $600 during the year.
- You paid someone who is not your employee.
- You paid for services in the course of your trade or business (including government agencies and non-profit organizations).
- You paid an individual, partnership, estate, or, in some cases, a corporation.
These payments may include:
- Fees
- Commissions
- Prizes
- Awards
- Fish purchases for cash
- Any other form of compensation for services performed for your trade or business by an individual who is not your employee.
If you’re a payer who should file miscellaneous payments and nonemployees compensations for 2019 and prior years, use 1099-MISC for reporting purposes. It means the new form 1099-NEC needs to be used from 2020 onwards.
Filing Deadlines For Form 1099s
Late Filing Penalties
Failure to file on or before the deadline will be subjected to penalties based on how late it is filed.
Form 1099 State Filing
For the purpose of state filing, 1099-NEC is not part of the CF/SF program for 2021. Every taxpayer who relied on Combined Federal/State Filing has to take note of this new update.
Going forward, Form 1099-NEC will have to be filed separately for state purposes.
Final Takeaway
To avoid the confusion of having two deadlines for the same form 1099-MISC, the IRS introduced 1099-NEC to report nonemployee compensation. If you would like to e-file Form 1099 MISC or 1099-NEC, do check out TaxBandits.
TaxBandits is an IRS-certified e-file service provider supporting the filing of various tax returns, including 1099-MISC and 1099-NEC. Get started with TaxBandits today and stay compliant with the IRS!
