1099-MISC & 1099-NEC Basics & FAQs
Not sure if you need to file a Form 1099-MISC or the new Form 1099-NEC or both? In this article, we answer frequently asked questions and break down the basics of a Form 1099-MISC and Form 1099-NEC.
In this article:
- What are the differences between Form 1099-MISC Form and Form 1099-NEC?
- When is a 1099-NEC and 1099-MISC Forms due?
- Why do I need to complete a 1099-MISC or 1099-NEC Form?
- Are there certain types of entities that do NOT require a 1099?
- What is the difference between a 1099-MISC, 1099-DIV, and 1099-INT?
- Do credit card payments to 1099 vendors need to be tracked for income?
- Should reimbursements to sub-contractors be included in 1099 tracking?
- What is the difference between guaranteed payment and a partnership distribution?
- What specifically do "legal fees" entail?
- What if I pay "rents" to a property manager?
- What is a W-9 Form?
- When do I need to request W-9 Form?
What are the differences between Form 1099-MISC and Form 1099-NEC?
Form 1099-MISC and the Form 1099-NEC are tax information returns the IRS requires for reporting compensation to individuals or unincorporated businesses to whom you have issued $600 or more in rents or compensation (other than salaries, wages, tips or other employee compensation, which are reported on Form W-2). IRS also requires 1099s for payments of $10 or more in gross royalties. There are additional requirements and scenarios when a 1099 of other variants may be required. For more details, see IRS General Instructions for Certain Information Returns.
Starting in 2020, you will use Form 1099-NEC to report non-employee compensation (NEC; e.g., "independent contractor" pay), which was previously noted in box 7 of Form 1099-MISC. The IRS implemented a separate 1099 form since the NEC reporting deadline is January 31, whereas other items reported on a 1099-MISC are not due until the end of February.
Box assignments have also changed on Form 1099-MISC now that NEC is reported separately.
When are the 1099-NEC and 1099-MISC forms due?
Form 1099-NEC must be filed with the IRS by January 31. In addition, recipient copies must be postmarked by January 31. Note: If January 31st falls on a weekend, the deadline is the following first business day.
All others 1099 forms are due by February 28 if filed by paper, or March 31 if filed electronically (or the following first business day if the deadline date falls on a weekend). Penalties for late filing range from $30 - $100/form; penalties for intentionally disregarding the requirement are $250/form.
Why do I need to complete a 1099-MISC or 1099-NEC form?
The information is used by the IRS to verify the vendor you paid has reported at least the amount you stated in gross business income. The IRS requires corporations on Form 1120 indicate whether or not they made any payments that would require a Form 1099 be filed and whether or not the form was filed. Thus your tax preparer will be required to review your 1099s to ensure all were accounted for properly prior to submitting your corporate tax return. Same is true of partnerships filing Form 1065. As with all IRS items, there is a lot of fine print. This article cannot capture all scenarios.
Are there certain types of entities that do NOT require a 1099?
Although incorporated vendors do not require a 1099-MISC to be issued at year-end (i.e., C-Corps and S-Corps), it is still within your right to request a W-9 from these types of vendors; and you could also send a 1099-MISC if you are unsure of their entity type and eligibility.
What is the difference between a 1099-MISC/NEC, 1099-DIV, and 1099-INT?
Form 1099-MISC/NEC aggregates payments made for services performed as outlined above. A Form 1099-INT is an interest statement for interests paid; Payers must issue to any party to whom they paid at least $10 of interest to during the year. A Form 1099-DIV provides statement on dividends paid (a common reason might be related to capital gains distributions related to stocks, mutual funds, or investments).
Do credit card payments to 1099 vendors need to be tracked for income?
You are not required to send a 1099-MISC if you paid any contractor via credit card (PayPal, etc.), even if you paid the recipient more than $600 last year. In the case of electronic payments (credit card payments), the payment processor will handle any required reporting. FYI - Those payment processors are required under certain circumstances to send out a different version of the 1099, called a 1009-K.
Should reimbursements to sub-contractors be included in 1099 tracking?
No, UNLESS the Payer does not keep track of these expenses using an accountable plan (substantiation such as receipts are provided). If you DO track these expenses using an accountable plan, there is no need to include these amounts on a 1099-MISC or 1099-NEC.
Depending on the accounting of the business, some will still include reimbursed expenses as nonemployee compensation reported on a 1099-NEC; the recipient can then deduct that amount when filing their individual tax return. HOWEVER, if reimbursements are a part of services (supplies, parts, materials incidental to providing service), then a 1099 may be required.
EXAMPLE: You purchase cleaning supplies from XYZ Cleaning to have on-site (does not require a 1099). If you pay ABC Cleaning to come and clean, and they charge you for the cleaning supplies, then the total amount should be included in the 1099-NEC.
What is the difference between guaranteed payment and a partnership distribution?
Distributions are made as earnings, or in liquidation of a member's interest. Guaranteed payments are made irrespective of earnings considerations and subject to income and self-employment taxes reported on a tax return. For example, premiums for health insurance paid on behalf of a member for services rendered are treated as guaranteed payments. Cash payments are treated as a Distribution. Seek help from your CPA or tax advisor on the ins/outs of your situations.
What specifically do "legal fees" entail?
For any amounts greater than $600, a 1099 is required, EVEN IF THEY ARE INCORPORATED.
If the payment is for legal services provided by an attorney, and is an amount greater than $600, report those amounts on a 1099-NEC. However, Gross Proceeds (from a settlement) paid to an attorney, are reported in box 10 of a 1099-MISC.
What if I pay "rents" to a property manager?
If rents were paid to a real estate agent or property manager, that entity will send a 1099 to the property owner. If you pay rents directly to the property owner, you will need to issue a 1099 for any amounts over $600.
What is a W-9 Form?
A signed W-9 confirms, under perjury laws, that the signer is providing accurate information regarding their entity type, federal tax classification, and Taxpayer ID Number (TIN). A vendor can say that they are incorporated, and that they do not need to provide a W-9 or receive a 1099-MISC at year-end, but that is not always accurate.
When do I need to request W-9 Form?
If you are hiring an independent contractor to provide or complete a service, we recommend that you request a copy of a signed Form W-9 prior to that contractor beginning the project. (It is also advisable that you obtain a copy of the contractor’s Workers' Compensation/General Liability insurance policy.)
How to tell whether your vendor needs a 1099-NEC or 1099-MISC
If you are not sure which form to send to your vendor, visit the IRS website to review the guidelines HERE
For a further breakdown of items on Form 1099-Misc, visit the IRS 1099 Instructions page.