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Form 1099-MISC VS Form 1099-NEC

1099-nec-vs-1099-misc

Understanding the Differences Between Form 1099-NEC vs Form 1099-MISC

If you were a freelancer or an independent contractor before 2020, you were probably used to filing Form 1099-MISC for all your earnings. But now, as you probably know, there are two types of forms to report 1099 earnings, the 1099-MISC and the 1099-NEC. Suppose you are newly entering the job market as a self-employed individual or freelancer. In that case, you can probably benefit from a better understanding of the two forms and why they are important when you go to file your taxes after the end of the year.

Table of contents

First, what exactly are these two IRS 1099s?...Read more

What is a 1099-NEC and how is it useful to you?...Read more

First, what exactly are these two IRS 1099s?

In Form 1099-NEC, the NEC stands for Non-Employee Compensations. The MISC in Form 1099-MISC stands for Miscellaneous Information.

History of the two forms

The 1099-MISC changes over the years

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What is a 1099-NEC and how is it useful to you?

If you received a 1099-NEC this year, you have to first and foremost understand what's on it.

What does the 1099 NEC report?

Businesses or entities file Form 1099-NEC if they hired you as a contracted or a freelance worker. Only the income payouts you receive from them in a given year are reported; it's not meant for any other payment or compensation.

So who receives 1099-NEC?

Every self-employed individual who is hired by a business or an entity and earns $600 or more in a year for lending their services will receive the 1099-NEC. Say you are a photographer hired by a magazine, or an industry expert doing consulting work for a new business, or an attorney contracted by a business for a special case. As long as you are not on the employee payroll of the business and have been paid $600 or more for your services to the firm, you will receive a 1099-NEC. There are four conditions that the IRS lays out for businesses to report such payouts, and you should keep them in mind when you are reviewing the 1099-NEC forms you receive in order to file your income tax return accurately.
What is a 1099-NEC and how is it useful to you?

Watch out for one more condition.

If the business paying you makes a direct sale of $5,000 or more to you during the tax year for something you plan to resell, it needs to be reported on the 1099-NEC form, as well. For instance, say you are a freelance writer with your own book store. A magazine hires you to write a regular column for a year, and during that time, you make a direct purchase of their latest stock of magazines worth $6,500 to sell them in your store. And, since you will ultimately earn income from selling the magazines, the magazine company reports that stock purchase on Form 1099-NEC.

Note:

During your review of a 1099-NEC, also make sure you check whether the business reports your federal income tax withheld by them, if any, regardless of the amount. This falls under the backup withholding rules laid out by the IRS. The 1099-NEC you receive will look like this:
What is a 1099-NEC and how is it useful to you?
Things to watch out for when reviewing this form:
  • Make sure it does not capture your W-2 earnings if you are an employee on a payroll for a business.
  • The form should not highlight any of your personal payments.
  • You should receive the 1099 NEC no later than January 31. If you have not received the form from a hiring business by then, notify the business. If it might lead to you missing the tax filing deadline, you can notify the IRS at your discretion.
  • What to do when you receive Form 1099-NEC As a freelancer who just received Form 1099-NEC, you need to review 4 basic details on the Form 1099-NEC about yourself and the income payouts made to you by your hiring business.
What is a 1099-NEC and how is it useful to you?

What is a 1099-MISC and how is it useful to you?

Calculating taxes on Form 1099-NEC and 1099-MISC

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