Hiring an independent contractor to work for your business is popular for several reasons, including less paperwork and fewer tax payments. For small business owners who used independent contractors last year, you’ll need a new form for filing their reported income. Instead of filing a 1099-MISC, you’ll need to file Form 1099-NEC.
When comparing 1099-MISC vs. 1099-NEC, we’ll show you which one you need, the differences, and the steps to get them filed correctly.
A 1099-MISC and a 1099-NEC are commonly mistaken as the same form, but they serve different purposes.
President Reagan originally introduced the 1099-NEC back in the 80s for tax filers to report self-employment earnings, but the IRS discontinued it in 1982 in favor of a consolidated income reporting form.
Form 1099-MISC replaced the old form, but is now only used to report nonemployee earnings from income streams like royalties, rent, and prize winnings. This is because Form 1099-NEC was reinstated in 2020 so businesses can report payments they make to independent contractors.
The 1099-MISC is an informational form used by the IRS to gather how much miscellaneous income recipients earned from various sources throughout the year.
These sources are specifically outlined by the IRS. If any of the following apply to you, you must file Form 1099-MISC:
If you paid at least $10 in:
Or at least $600 in:
Bottom line: Business owners send a 1099-MISC to each person paid during the year that meets the above criteria. Other sources of income use separate 1099s, such as dividend income (1099-DIV) or brokerage commissions (1099-B).
Form 1099-MISC can be found on the IRS website as a downloadable PDF. There will be three versions included:
Here’s what it will look like:
A Form 1099-NEC, or Form 1099 - Non-Employee Compensation, is also an informational form that is used by the IRS, but it gathers information pertaining to nonemployee earnings. This form helps the IRS track an independent contractor's total earnings and collect the correct amount of taxes.
Any business that paid an independent contractor $600 or more in the prior year will be required to issue a 1099-NEC to both the contractor and the IRS.
Nonemployment compensation is the income independent contractors earn. This is different from the wages traditional staff employees earn.
All nonemployment compensation is reported on Form 1099-NEC. All employment compensation is reported on Form W-2.
Form 1099-NEC can also be found on the IRS website as a downloadable PDF. There will be three versions included:
Here’s what it will look like:
Businesses will use Form 1099-NEC for any and all subcontractors they worked with in the prior year and paid at least $600 (per contractor).For example, if you had 20 subcontractors you paid at least $600 over the year, you'll have to issue 20 1099-NECs. On the other hand, businesses will use Form 1099-MISC for any and all miscellaneous payments they made for at least $600.
It’s important to note that you can use either of them, both of them, or neither depending on your situation. At a glance, this could look like:
We’ll cover specific use cases for each form below, as well as some common questions regarding their separation.
Form 1099-MISC is used to report a recipient’s miscellaneous income to the IRS. Keep in mind that a 1099-MISC isn’t a blanket document for all other income besides wages earned through employment. Here are the times you will use a 1099-MISC:
If you paid at least $10 in:
Or at least $600 in:
No, Form 1099-NEC does not fully replace Form 1099-MISC. A 1099-NEC replaces only one aspect of the 1099-MISC: nonemployment compensation. If you fit the criteria on any of the above payments and thresholds, you will need to issue a 1099-MISC.
Form 1099-NEC only has one purpose:
Businesses use this form to report to the IRS what an independent contractor earned. The IRS then uses the earnings to determine how much the contractor owes in taxes.
The filing deadline for the 1099-NEC and 1099-MISC forms is January 31 each tax year for any business that meets the criteria we covered. Later on, we’ll discuss what happens if you don't file your 1099-NEC or 1099-MISC. Filing can happen in one of two ways:
See the addresses below for 1099-MISC and 1099-NEC manual submission by state:
Businesses are required to send out 1099s to payment recipients if they need to report $600+ in nonemployment compensation or miscellaneous payments. The filing portion is the recipient’s responsibility.
Recipients only need to file a 1099-NEC or a 1099-MISC if they qualify for the forms. Assuming they lawfully receive both forms they are required to file them or be subject to IRS penalties. There is no maximum penalty for intentionally disregarding a form, and the maximum can fluctuate depending on the size of the business.
Contact the issuer as soon as possible if you receive a 1099-NEC by mistake, since receiving a 1099-NEC when you’re not self-employed can cause you to pay taxes on income you haven’t earned.
The issuer's information can be found in the top left corner of the 1099-NEC under “Payer’s information.”
For business owners filling out Forms 1099-NEC and 1099-MISC, there is some information you will need to have handy. This includes your business’s:
As for the rest of the process, we’ll walk you through each form and show you how to best prepare for filing below.
To start, download your Form 1099-MISC from the IRS website. If you have accounting software that handles your taxes, you don't need to do this—the software will prepare the form for you based on the information you provide. But let’s assume you’re doing this by hand and walk you through the steps.
The payer (that's you) will need to fill in the top portion of the 1099-MISC with the basic information we discussed above (name, address, and so on). Remember to check your information carefully, as accounting errors can occur on even the simplest of forms.
Whomever you paid during the year that falls under the classification of miscellaneous income will be your recipient. For example, if you paid over $600 each to a fisherman, an attorney, and a landlord for rent, you will need to create three different 1099-MISC forms for each.
You’ll need their:
All of this information should be collected prior to doing business. This eliminates the possibility of delays on your end when it’s time for preparation. The best course of action is to collect a W-9 from each recipient.
Lastly, you need to fill in the amounts for each category you paid the recipient. There are 18 boxes total but not all of them apply, so don’t be surprised if you only use three or four of the boxes. If you get to a box and don’t understand what information they are requesting, visit the IRS website on page 5 for clarification.
Filing out Form 1099-NEC is similar to the 1099-MISC. First, you need to download the PDF from the IRS website. Keep in mind the number of forms you need depends on the number of independent contractors or freelancers you used and paid $600 or more during the previous year.
If you use QuickBooks Contractor Payments to pay your 1099 workers, the process of completing and filing Form 1099-NEC is simple – your 1099-NEC will be complete and ready to send. Just e-file with the IRS using our online portal, right in QuickBooks.
Same as the 1099-MISC—the payer needs to fill in the top portion of the 1099-NEC with the basic information (name, address, and so on). Again, remember to check your information carefully. If you don’t file correctly, you will need to resubmit it.
Any payee or subcontractor you paid $600 or more will receive a 1099-NEC, and it’s up to you to know who those contractors are. This is where good bookkeeping can make a big difference. For each of these contractors, you should have collected a Form W-9 prior to work beginning. It will have all the information you need to fill in for the recipient's portion of the 1099-NEC, including their:
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. For information regarding the other boxes, visit page 5 on the IRS website.
Remember that it is very possible to not only use both Forms 1099-MISC and 1099-NEC but to need multiples of each one. The most important factor here is organization and efficient bookkeeping to eliminate the possibility of leaving one out.
For seasoned and startup business owners alike, there’s assistance available. QuickBooks offers the experience of professional accountants and powerful software to help you:
QuickBooks can also help you file your tax return electronically this tax season while adhering to both state and federal guidelines.
You can also talk to a Quickbooks-approved CPA or try out ProConnect to discuss filing requirements and ensure you have everything you need to pay your federal income tax and send the correct forms to the self-employed individuals you collaborate with.
QuickBook Online Payroll & Contractor Payments: Money movement services are provided by Intuit Payments Inc., licensed as a Money Transmitter by the New York State Department of Financial Services, subject to eligibility criteria, credit and application approval. For more information about Intuit Payments Inc.’s money transmission licenses, please visit https://www.intuit.com/legal/licenses/payment-licenses/.
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