When Should a Company Use Form 1099-NEC Instead of Form 1099-MISC?

What is tax form 1099-NEC, how does it vary from 1099-MISC, and is it mandatory for firms to use it to record nonemployee compensation?

What you’ll discover:

What exactly is Form 1099-NEC?
What is the difference between Forms 1099-NEC and 1099-MISC?
Who is required to submit Form 1099-NEC?
How should I complete Form 1099-NEC?
Is Form 1099-NEC included in the Federal/State program?
Prepare ahead of time to meet your company’s tax form filing deadlines.

Many small firms use independent contractors instead of or in addition to full-time workers. If you employ independent contractors to perform services for your firm, keep in mind that your company may be required to file tax returns, even if you do not withhold income tax from the contractors’ salary. In most circumstances, nonemployee remuneration will be reported on IRS Form 1099-NEC Nonemployee Compensation for tax year 2022.

What exactly is Form 1099-NEC?

Small company owners who compensated independent contractors for services completed their tax reporting duties in past tax years by reporting the payments in box 7 of IRS Form 1099-MISC.

While Form 1099-NEC is not a new document, many small company owners are unfamiliar with it. This form was reintroduced in 2020 as a distinct method for firms to record nonemployee remuneration from other forms of payments reported on Form 1099-MISC.

What is the difference between Forms 1099-NEC and 1099-MISC?

Certain companies will be required to submit both 1099-NEC and 1099-MISC forms. It is critical to comprehend the distinctions. The main difference is that nonemployee remuneration should now be reported on Form 1099-NEC rather than Form 1099-MISC.

Payment for services, including components or supplies, professional service fees, referral fees, commissions, perks, prizes, and rewards for services performed by a nonemployee, and other forms of remuneration provided to nonemployees may be reported on Form 1099-NEC.

Other sorts of payments are reported using Form 1099-MISC. This form will be used if you paid someone at least ten dollars in royalties or $600 or more in 2022 for rentals, prizes and awards, medical and health care payments, payments to an attorney, and other less typical payments such as fishing boat revenues or crop insurance proceeds. The 1099-MISC form is also used to record any amount of federal income tax withheld under the backup withholding regulations.

Who is required to submit Form 1099-NEC?

If your company paid an independent contractor $600 or more for services in 2022, you must create and submit Form 1099-NEC and give a copy to the independent contractor.

In general, Form 1099-NEC will be used if all of the following conditions are met:

You compensated a non-employee for services connected to your profession or company.
Payments totalled $600 or more throughout the year.
An person, a partnership, an estate, or a corporation received payment.

How should I complete Form 1099-NEC?

To complete Form 1099-NEC, you will need many crucial pieces of information. Here are some examples:

Information about your company (as payor), including its legal name, employment identification number (EIN), and address.
The name, address, and Social Security or tax identification number of the beneficiary.
In 2022, the total amount of nonemployee remuneration paid to the beneficiary.
Withheld federal income tax (if any).
Provide details.

Small companies may and should submit Form 1099-NEC online with the IRS rather than on paper. You may utilize the Filing Information Returns Electronically (FIRE) technology to do so.

Is Form 1099-NEC included in the Federal/State program?

Information supplied to the IRS on various kinds of tax and payroll forms is automatically shared with participating state tax authorities under the IRS combined Federal/State filing program. According to IRS Publication 1220, it includes Form 1099-NEC for the 2022 tax year.

Prepare ahead of time to meet your company’s tax form filing deadlines.

The federal filing deadline for 2022 employee W2s and independent contractor 1099-NEC forms is January 31, 2023, regardless of whether your personnel are designated as employees or independent contractors.