What is Form 1099-NEC and how is it different from Form 1099-MISC?

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You may have been familiar with form 1099-MISC in the past, but in 2020 its use changed a little as form 1099-NEC was introduced. Today, if you are an independent contractor or a business that hires independent contractors, you must be familiar with form 1099-NEC.

What is the form 1099-MISC used for?

Form 1099-MISC, prior to 2020 was used to report income including contracted work, now it is for other miscellaneous income. If you paid at least $600 to someone for things such as prize winnings, rents, or payments to an attorney, you would file form 1099-MISC.

Who files the 1099-MISC?

Form 1099-MISC is issued by the payer. If your business paid anyone more than $600 in a calendar year for certain miscellaneous incomes, you need to fill out form 1099-MISC.

When is form 1099-MISC not required?

  • If you are an individual not engaged in business, you will not file a 1099-MISC.
  • If your business paid less than $600 in a financial year to someone, form 1099-MISC is not required.
  • If you paid a corporation, for anything other than medical or legal services, you do not need to file a 1099-MISC.

What is the form 1099-NEC used for?

Form 1099-NEC is simply used to report non-employee compensation to the Internal Revenue Service. A non-employee is exactly what it sounds like, someone who cannot be considered an employee. Independent contractors and freelancers are examples of non-employees. If you paid a non-employee more than $600 during the financial year, you would need to fill out a 1099-NEC form.

Who files the 1099-NEC?

The payer issues Form 1099-NEC. If your business paid someone, such as an independent contractor or freelancer, to complete a task, and the total paid was over $600 during the calendar year, you must fill out form 1099-NEC.

When is form 1099-NEC not required?

There are instances where form 1099-NEC is not required to be filed.

  • You will not file a 1099-NEC for employees (you will file a W-2 form instead).
  • You will not file a 1099-NEC if you paid the contracted person less than $600 during the year.
  • You will not file a 1099-NEC if the contracted person is registered as a C-Corp or S-Corp (this information can be found on their W-9 form).

Filing Form 1099-NEC

Form 1099-NEC has two copies, Copy A and Copy B. Each copy must be filled out and sent to its appropriate recipient. Copy A is to be sent to the IRS and Copy B is to be sent to the person you paid.

Remember, you must file a 1099-NEC form for each independent contractor to whom you paid more than $600 to during the calendar year.

Before filing, you need to gather all the information you will need.

Most of the information you will need about the payee will be listed on their W-9 form, so it is important you have each independent contractor fill one out when you first start a contract with them. Information on the W-9 that you need:

  • Their legal name
  • Their address
  • Their taxpayer id (usually their social security number)
  • Also, this is the form that will tell you if they are registered as a C-Corp or S-Corp (if they are, you do not need to file the 1099-NEC form.

You also need to know exactly how much you paid this person during the financial year. This is where good bookkeeping records come in.

Filling out each copy

Now that you have all the information you need, you simply enter it onto the form. Copy A and Copy B should have the exact same information entered into them. Both are due to their appropriate recipients by January 31st.

Copy A

You may submit Copy A of the 1099-NEC form to the IRS via mail or electronically.

  • By mail – If you submit the form by mail, you must use a physical copy of Form 1099-NEC (not a downloaded copy). This can be requested from the IRS website. You will also need to fill out Form 1096.
  • Electronically – If you want to submit the 1099-NEC electronically, you must first obtain a Transmitter Control Code (TCC). This must be requested at least 30 days prior to the due date of the 1099 form using Form 4419. Once you have your TCC, you can create an account on the IRS’s Filing Information Returns Electronically (FIRE) system.

Copy B

As with Copy A, Copy B can be sent to the payee through the mail or electronically.

  • By Mail – You can use a downloaded copy of the form from the website for Copy B. You just fill it out and mail it to the payee before January 31st.
  • Electronically – In order to send the Form 1099-NEC copy B electronically to the payee, you must first obtain explicit consent. You must also request that consent using the same mode you plan to use to send the form, i.e., if you plan to email the form, you must obtain consent via email.

Guidelines for Obtaining Consent to Send Copy B Electronically
You must outline the following clearly to the payee:

  • If they do not consent to an electronic copy, they will receive a paper copy.
  • The specific duration of consent (is the consent only applicable for a specific year, or is the consent for every year a Form 1099-NEC is required?).
  • Steps to obtain a paper copy, even with consent to send electronically.
  • How to withdraw consent to send the form electronically.
  • The reasons the notice will no longer be provided (i.e., contract cancelled, paid less than $600 during the calendar year, etc.)
  • How the payee can update their information with you
  • Exactly what software (and hardware) will be needed to view and print the 1099-NEC

Guidelines for Obtaining Consent to Send Copy B Electronically
You must outline the following clearly to the payee:

  • If they do not consent to an electronic copy, they will receive a paper copy.
  • The specific duration of consent (is the consent only applicable for a specific year, or is the consent for every year a Form 1099-NEC is required?).
  • Steps to obtain a paper copy, even with consent to send electronically.
  • How to withdraw consent to send the form electronically.
  • The reasons the notice will no longer be provided (i.e., contract cancelled, paid less than $600 during the calendar year, etc.)
  • How the payee can update their information with you
  • Exactly what software (and hardware) will be needed to view and print the 1099-NEC
When the statement will be available (i.e., if you are posting the form on your company’s website and it will only be listed there for a certain number of weeks, this must be outlined)

Does Form 1099-NEC need to be filed with your state as well?

Not every state requires the 1099-NEC to be submitted to them as well as the IRS. The list below is all states that do not require Form 1099-NEC to be filed with them.

  • Alaska
  • Nevada
  • South Dakota
  • Washington
  • Florida
  • New Hampshire
  • Tennessee
  • Wyoming
  • Illinois
  • New York
  • Texas
 

It is always a good idea to confirm with your CPA that you are compliant with your state’s filing requirements.

How can Remote Books Online help?

When tax season rolls around, you need to know who paid and exactly how much you paid them. For this information to be easily accessible, you need up-to-date accurate records. Remote Books Online is a bookkeeping service that has professional bookkeepers who will provide you with this information each tax season. Remote Books Online will send you a report outlining who you need to fill out a Form 1099-NEC for and exactly how much you paid them during the year.

What are the penalties if you file the 1099-NEC late?

If you file Form 1099-NEC late or if you fill it out with incorrect information, you will face penalties. For tax year 2022, the following penalties will apply:

Up to 30 days late: $50
Over 30 days late through August 1st: $110
After August 1st : $280
Intentional Disregard: $570

It is important to request an extension if you know that you cannot meet the deadline to file. Use Form 8809 to request an extension with the IRS, however, you still need to submit Copy B to the payee by January 31st.

What’s Remote Books Online?

Remote Books Online is an online bookkeeping service that aims to meet all of your bookkeeping needs on a timely basis. Once you sign up for Remote Books Online’s services, you will be assigned a dedicated bookkeeper and lead accountant. There is no contract, and your first month of bookkeeping is on us! We would love the opportunity to show you how we can take the stress out of the bookkeeping process and provide you with accurate and up-to-date financial statements every month.

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