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WHAT'S THE DIFFERENCE?

Form 1099-NEC and Form 1099-MISC

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Two tax forms instead of one

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 1099-MISC and the 1099-NEC forms and why they are important when you go to file your taxes after the end of the year. You will get a basic sense in terms of 1099-NEC vs 1099-MISC here.

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 Income.

History of the two forms

If you have done some work for a business as a self-employed person or freelancer, you have probably received a Form 1099-NEC. That form is essential for your tax filing, and so is a good understanding of where it came from and what it's for. Since 2020, self-employed people and freelancers receive a Form 1099-NEC that shows their income from each business that hired them. But it's not a new form released by the IRS; it's actually a reintroduced form from the 1980s.

The 1099-MISC changes over the years

At some point, the IRS added Non-Employee Compensation to the Form 1099-MISC, which reports miscellaneous income outside of W-2 wages and salaries, also known as non-employee compensation. This made the 1099-NEC redundant. It seems simpler to have one form to report all non-employee income. So why did the IRS switch to two forms? Basically, there were two deadlines to report two different kinds of payments in the same form. So naturally, this caused a lot of confusion. Non-employee compensation, or payment for work done, was reported on January 31. Other income, like payments to attorneys or prizes and awards given out, was reported on February 28. You can imagine how many businesses mixed up deadlines and filed the form late or made other mistakes in filing. This meant self-employed people and freelancers sometimes received the form past the due date and often with errors, which delayed their tax filing.

Image depicting the history of 1099-NEC and 1099-MISC forms since 1983. Includes reintroduction of 1099-NEC in 2020 to report non-employee compensations separately. Relevant for taxes, freelancers, and self-employed.

To avoid this confusion, the IRS reintroduced Form 1099-NEC in 2020, making it the sole form for reporting payments for work done by independent contractors or freelancers like you. The IRS provides a detailed map of 2024 instructions for forms 1099-MISC and 1099-NEC. Check out this 1099-NEC vs 1099-MISC infographic:

Image explaining 1099 forms - 1099-NEC for non-employee compensation & 1099-MISC for miscellaneous payments like rent or healthcare. Relevant for self-employed, freelancers & taxes.

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. And it doesn't include your estimated taxes.

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 form. 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. You're required to pay self employment taxes on this income. 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.

Image explaining 1099-NEC reporting criteria. Receive form if paid $600+ as non-employee for business services. Applies to self-employed, freelancers, and some corporations. Taxes.

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:

Image contains tax form instructions for nonemployee compensation (1099-NEC) with payer and recipient information, federal income tax, state taxes, and FATCA filing.

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

Image with text explaining details on 1099-NEC form for non-employee compensation, including TIN, name, address, social security number, and tax withholdings. #1099 #taxes #freelancer

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

It is possible that you received both Form 1099-NEC and 1099-MISC, and you might not know why. The 1099-NEC reports your income earnings, but it does not cover the various other payments that might have been made to you that are not part of the primary compensation you receive.

Image with text "Every non-employee income reported on 1099-MISC except NEC form." Relevant for self-employed, freelancers, and taxes.

So, who receives Form 1099-MISC? If you are paid $600 or more in miscellaneous payments, apart from royalties, it gets reported on Form 1099-MISC. Royalties have a different ceiling. If you receive $10 or more in royalties, the payment must be filed in a 1099-MISC. Suppose you have been hired as a nurse, painter, writer, construction worker, etc. If the business that is paying you also pays the rent for the duration of your stay or pays you a certain amount as medical benefits, these payments are considered miscellaneous and get reported on Form 1099-MISC. What forms of payment are categorized as miscellaneous?

Image showing various types of payments such as royalties, prizes, rent, dividends, medical, and crop insurance proceeds. Relevant for taxes, self-employed, 1099, and freelancers.

You can find a detailed map of the payments schedule for 1099-MISC on the IRS General Instructions page. To protect yourself from incorrect information that could lead to overpaying your taxes, cross-check the miscellaneous payments in your records with those reported in the form. If there are any discrepancies, contact the business to have them update the form correctly. The Form 1099-MISC looks like this:

Image displays a tax form with various boxes for reporting income and taxes. Relevant for self-employed, freelancers, and those receiving 1099 forms.

If there is data present in Box 8 or 10 for Form 1099-MISC, the deadlines are different for tax filing.

The deadline when you should receive Form 1099-MISC is January 31; if there is no data recorded in Box 8 or 10. For the 2024 tax year, you should receive your forms by January 31, 2025.
If data is reported in Box 8 or 10, the deadline is February 15. For the 2024 tax year, the deadline is February 15, 2024.
Regardless of Box 8 or 10, if the company that paid you is paper filing, the 1099-MISC IRS filing deadline is February 28. For the 2024 tax year, the deadline is February 28, 2025. However, if it is filing electronically, it is March 31 of every year.

Calculating taxes on Form 1099-NEC and 1099-MISC

Calculating the taxes due and filing the appropriate returns is a major task for most of us. As a freelancer with a work schedule and deadlines that are always changing, it's hard to find the time to accurately estimate all your taxes and apply relevant deductions to reduce your taxable income. There is little time to look at every expense receipt to verify it against the tax forms received and apply deductions. As a result, you might miss deductions and end up paying more in taxes than is required. A 1099 Tax Calculator can be useful in totaling all the tax deductions you can write off and get a lower tax bill. You can also use FlyFin's powerful A.I. tax service that can find every possible tax deduction to save you both money and time on your taxes. The highly experienced CPA team, who are experts in 1099 taxes are available 24/7 to answer any questions and even file your tax returns for you. Find out more about how Flyfin works, and get the Flyfin app now to fly through your taxes.

1099 and Taxes: A Guide for Self-Employed Individuals with 1099 Income

Taking care of your taxes as a self-employed person can be a difficult undertaking. The Internal Revenue Service (IRS) defines a self-employed person as someone earning income from an independent economic activity and is responsible for collecting self-employment taxes. Knowing how to manage self-employment tax and 1099 income is one of the most important things. We will explore the complexities of self-employment tax, its computation techniques, and ways to reduce your tax liability in this post.