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The New IRS Form 1099-NEC Summarized

In case you have not heard: The IRS has revived Form 1099-NEC, which was last used in 1982. This form will be used in 2021 to report 2020 non-employee compensation. Corresponding changes were made to the 1099-MISC form.

Nov 20th 2020
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1099 NEC
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In recent years, non-employee compensation was reported in Box 7 of the 1099-MISC form, that box now goes away. Instead, the 1099-NEC form Box 1 will be used to report non-employee compensation only. Other kinds of payments should be reported using the other 1099 forms (1099-MISC, 1099-INT, etc.).

The 1099-NEC does have a Box 2 on the form, which reads: “Payer made direct sales totaling $5,000 or more of consumer products to recipient for resale.” I have read several articles about the 1099-NEC and none discuss the use of Box 2, so refer to the IRS instructions for more detail. The other boxes on the 1099-NEC form are used to report any backup withholding, or state income tax withheld.

Form 1099-NEC has been re-introduced due to 2015 legislation which changed the due dates for reporting certain data, causing penalties for late filing which can now be avoided by using the different forms. Therefore, 1099-NEC is due the last day of January 2021, while the 1099-MISC form is due the last day of February 2021.

Finally, unlike the 1099-MISC, the 1099-NEC will not be included in the program where the IRS shares 1099 filing data with states.

Key Takeaways

• There is a new form for non-employee compensation, the 1099-NEC

• The 1099-MISC form has been redesigned – box numbers and locations have changed

• There are different due dates for the 1099-NEC and the 1099-MISC

• The 1099-NEC will not be shared by with IRS to States

1099-NEC: Use For

  • Non Employee Compensation for Independent Contractors of $600 or more
  • Someone who is not an employee, who provided services
  • Can go to an individual, parternship, estate, or corporation
  • Should inlcude payments for services AND payments for parts or materials used to perform the services

Examples: Attorneys, Architects, Accountants, Graphic Designer, Web Developer, IT consultant, freelance writer, non-employee sales commissions, freelance contractors, benefits consultant and directors' fees.

Filing Due Date: 1/31/2021

1099-MISC: Use For

Royalties, Rents, Prizes and Awards, Other Income Payments, Medical and healthcare payments, etc.

Filing Due Date: 2/28/2021

See IRS Form 1099-MISC and Form 1099-NEC Instructions for more details.

If you use a 1099 filing service, such as Track1099, they are already ready and prepared for the new form. If you still file manually, you can now be prepared.

Conclusion

It is important to be aware of and understand the differences between the 1099-NEC and the 1099-MISC. Here are some useful links for further reading:

Jody Linick is an AIPB Certified Bookkeeper, a QuickBooks® Certified Pro Advisor, and a member of the Intuit Trainer/Writer network.  Her company, FitBooks Pro [www.fitbookspro.com] (formerly called Linick Consulting), specializes in remote bookkeeping services for professional services firms using QuickBooks Online. You can find her series of Blog posts here

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