1099-MISC vs. 1099-NEC: Differences and filing deadlines

What is Form 1099-MISC?

Form 1099-MISC is for reporting nonemployee earnings from income streams like royalties, rent, and prize winnings. A 1099-MISC and a 1099-NEC are commonly mistaken as the same form, but they serve different purposes. The IRS sets limits for how much you can pay before needing to file a 1099-MISC form. 

You’ll need to file a Form 1099-MISC if either of the following is true: 

1. Paid at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest. 
2. Paid at least $600 for: 

• Rents 
• Awards and prizes  
• Attorney payments  
• Other income payments 
• Health care and medical payments 
• Crop insurance proceeds 
• Fishing boat proceeds 
• Cash spent on fish for resale
• Payments from a notional principal contract to an individual, estate, or partnership

Other sources of income use separate 1099s, such as dividend income (1099-DIV) or brokerage commissions (1099-B).

How to fill out Form 1099-MISC

When filling out a 1099 form, you can get a copy of Form 1099-MISC for information purposes from the IRS website. If you need to order preprinted 1099 forms, you’ll want to do that from an office supply store or online vendor like QuickBooks. 

There are five copies of Form 1099-MISC you’ll fill out and use: 

1. Copy A: For the IRS 
2. Copy 1: For your state tax department
3. Copy B: For the recipient (the person you paid) 
4. Copy 2: Also for the recipient 
5. Copy C: For the payer (your copy for recordkeeping) 

Here’s an example of what each Form 1099-MISC will look at, including the three key sections you’ll be using:

Once you’re ready to fill out the 1099-MISC forms, here’s how to complete each section: 

1. Payer's information: The payer (that's you) will need to fill in the top portion of the 1099-MISC with the basic information, such as your name and address. Remember to check your information carefully, as accounting errors can also occur on simple forms. 
2. Recipient's information: You’ll need their name, address, and tax identification or Social Security number. You should collect all of this information before doing business, usually by sending them a Form W-9. 
3. Boxes 1-18: Lastly, you need to fill in the amounts for each category you paid the recipient. There are 18 boxes, but not all of them apply—you’ll likely only use three or four. 

If you get to a box and don’t understand what information they are requesting, visit the IRS website on page 5 for clarification.

What is Form 1099-NEC?

A Form 1099-NEC, Non-Employee Compensation, is for reporting nonemployee earnings. This form helps the IRS track an independent contractor's total earnings and collect the correct amount of taxes. 

Any business that pays an independent contractor over $600 will need to issue a 1099-NEC to the contractor and tax authorities. For example, if you have 20 subcontractors and your total payments to each were over $600 for the year, you'll send each contractor a Form 1099-NEC.

How to fill out Form 1099-NEC

Filling out 1099 forms is a similar process, whether it’s a 1099-MISC or 1099-NEC. You can get an informational copy of Form 1099-NEC from the IRS website—the number of forms you need depends on the number of independent contractors you pay over $600 to. 

There are five copies of Form 1099-NEC you’ll fill out and use: 

1. Copy A: For the IRS 
2. Copy 1: For your state tax department
3. Copy B: For the recipient (the person you paid) 
4. Copy 2: Also for the recipient 
5. Copy C: For payer (your copy for recordkeeping) 

Here’s an example of what each Form 1099-NEC will look at, including the three key sections you’ll be using:

See the differences between 1099-NEC vs. 1099-MISC forms.

Once you’re ready to fill out the 1099-NEC forms, here’s how to complete each section: 

1. Payer’s information: Same as the 1099-MISC—you’ll fill in the top portion of the 1099-NEC with your basic information. Again, remember to check your information carefully. If you don’t file correctly, you will need to resubmit it.
2. Recipient information: Any freelancer or subcontractor you pay over $600 to will receive a 1099-NEC, and it’s up to you to know who those contractors are. For each contractor, you should have collected a Form W-9 before beginning work. It will have all the necessary information to fill in for the recipient's portion of the 1099-NEC. 
3. Boxes 1-7: Unlike the 1099-MISC, Form 1099-NEC only has seven boxes. In most cases, the only box that will apply to you is box 1: Nonemployee compensation. If any of the other boxes do apply to you, you’ll want to follow guidance from the IRS website.

Note that if you use contractor payment services like QuickBooks Contractor Payments to pay your 1099 workers, completing and filing Form 1099-NEC is simple.

Forms 1099-MISC vs. 1099-NEC: How to file each

When preparing to file your 1099 forms by the deadline, the first step is to ensure you have them ready by the deadline. A key difference between 1099-MISC and 1099-NEC forms is the filing deadline. The filing deadline for these two forms is:

• Form 1099-MISC: March 31 if filing electronically (Feb 28 if filing paper copies)
• Form 1099-NEC: Jan 31

As for the rest of the process, let’s look at where each copy goes:

1. Filing with the IRS

Filing Copy A with the IRS is a crucial part of the tax filing process for both forms. There are two methods for filing Copy A: 

• Electronic filing: This is the fastest way to get it done. You’ll use the IRS’ FIRE (Filing Information Returns Electronically) system, which allows you to submit your forms faster with fewer errors. If you use accounting software with payroll integrations like QuickBooks Payroll, you can e-file directly from your software. 
• Paper filing: This is the slower option. You’ll submit your copies by mail to a specific address, depending on where your business is.

If you use accounting software or contractor payment services, they can likely file electronically for you.   

2. Sending copies to the recipient

Next, you’ll send the recipient their copies—Copy B and Copy 2. With their consent, you can send the form electronically. Again, if you use software or a service, they can likely send these for you.  

3. State filing requirements

State filing requirements for Forms 1099-MISC and 1099-NEC vary depending on the state. Some states require you to file these forms with the state, while others do not have such requirements.

States exempt from 1099 filing include Alaska, Florida, Illinois, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington, and Wyoming. If you are a business or independent contractor operating in these states, you do not have to submit 1099 forms to the state.

Filing requirements can change, so you’ll want to check with each state's tax authority for the most up-to-date information.

Best practices for Forms 1099-MISC or 1099-NEC

It’s easy to make mistakes on 1099 forms. One of the keys to remember is that you may need to file more than one or none at all. For 1099-MISC and 1099-NEC forms, this could look like this:

• 1099-MISC only: Reporting specific types of payments besides wages 
• 1099-NEC only: Reporting nonemployee compensation
• Both forms: Paying an independent contractor over $600 and over $600 in rent 
• Neither form: Only paying an independent contractor $300 for the year and not making any miscellaneous payments

If you do have to file one of these forms, ensure you adhere to filing deadlines and that all information is accurate. This includes the recipient’s taxpayer identification or Social Security number. 

Penalties for incorrect or late filings on 1099 forms

Missing the deadline for filing Form 1099-NEC can lead to fines and fees, which increase the later the filing is submitted. Adhering to the 1099-MISC and 1099-NEC due date is crucial to avoid these penalties.

The IRS imposes varying penalties for late Form 1099 submissions:

• $60 per form if you file up to 30 days after the due date 
• $130 per form if over 30 days late but before Aug 2 
• $330 per form after Aug 1 or if you don’t file at all
• $660 per form for intentionally disregarding filing requirements 

To avoid these penalties, file your 1099 forms correctly and on time. If you encounter unforeseen delays, you can request an extension using Form 8809 to get additional time for filing.

Find peace of mind come tax time

Remember, you may need to use both Forms 1099-MISC and 1099-NEC or multiples of each. 

Maintaining proper organization and bookkeeping will help determine whether you need a 1099-MISC or a 1099-NEC form and ensure you don’t accidentally overlook either one. 

For seasoned and startup business owners alike, there’s assistance available. Accounting software like QuickBooks Online can help you track contractors and fill and file out your forms.