People use IRS Form 1099-MISC to report miscellaneous income.
Taxpayers use IRS tax Form 1099-NEC to report non-employee compensation, which refers to payments made to individuals who are off the payroll and complete project assignments on a contract basis. All gig workers, independent contractors, and self-employed individuals report their payments in box y of the 1099 MISC Form before 2020. The IRS Form 1099-NEC is used to report independent contractor income, though Form 1099-MISC was previously used for this purpose.
Businesses use Form 1099-MISC to report payments of $600 or more made for rent, legal settlements, award-winnings, or prizes. They also use it to report other miscellaneous income such as rent and payments to an attorney. Thus, Form NEC has not replaced Form MISC completely, but both will be used for different purposes.
Who should file Form 1099-NEC?
If an independent contractor receives independent income of more than $600 during the tax year, then they will receive Form 1099-NEC. Payments reported in this tax Form should be those required during the course of trade or business. Some examples of independent income that are to be reported on Form 1099-NEC are,
- Professional service fees are paid to designers, accountants, architects, attorneys, software engineers, and law firms.
- Feed paid to professionals such as attorneys.
- Commission paid to non-employee salespeople that are subject to repayment but have yet to be repaid in the year.
Independent contractors registered as an S corporation or C corporation do not receive payment for Form 1099-NEC.
Filing IRS Form 1099-NEC electronically:
Any business that makes non-employee compensation payments totaling $600 or more to at least one payee or withholds federal income tax from a non-employee payment will use this IRS tax Form. Taxpayers filing the tax forms in the paper should file by January 31st of the tax year.
Two copies of every tax Form 1099-NEC will fill out the same information. Taxpayers should send Copy A of the tax Form to the IRS and send Copy B to the contractor. The information required to file Form 1099-NEC with the IRS is as follows.
- Legal name or the business name of the business
- Type of business entity – such as partnership, corporation, and sole proprietorship
- The current address of the business
- Taxpayer identification number.
It is the responsibility of the taxpayer to file Form 1099-NEC. To get started, the taxpayers will need to collect some information from their contractors in order to proceed with filings. They can file the Form through mail or e-filing, and if they need to file it through the mail, they can request a physical copy from the official IRS website or seek assistance from credible tax filing companies like Tax2efile.
Tax2efile: IRS Authorized E-File Provider
The IRS introduced Form 1099-NEC in the year 2020, and it has changed how tax professionals and business owners handle certain types of tax reporting. Tax professionals at Tax2efile are ready to help tax professionals at all times in matters corresponding to e-filing Form 1099-NEC.