Filing Your Income Taxes

About the Form 1099-Misc & Form 1099-NEC

About the Form 1099-Misc & Form 1099-NEC
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Taxpayers who depend on income streams from sources other than conventional employer-employee relationships will receive Form 1099-MISC after the close of the tax year. You'll receive income from a “payer” or “issuer” of funds rather than an employer. This income might be earned or unearned, covering a diverse spectrum that includes rental income, prize money, and health care payments. This form keeps track of taxable income that would otherwise slip through the cracks of being reported to the IRS. There is also IRS Form 1099-NEC for the 2020 tax year. This form is used to report income for independent contractors.

You’re probably familiar with the 1099-MISC form for self-employed taxpayers if you have your own business, but the IRS threw taxpayers a bit of a curveball in 2020 when it introduced a whole new tax form for these individuals. Their incomes have traditionally been reported on 1099-MISC forms as well, but they're reported on Form 1099-NEC beginning with ​tax year 2020​. Form 1099-NEC effectively separates out other types of payments from non-employee compensation, which is what self-employed independent contractors receive.

There is also IRS Form 1099-NEC for the 2020 tax year. This form is used to report income for independent contractors.

What Is a 1099-MISC Form?

The “misc” in the 1099-MISC form name hints at its diversity of income applications, even after removing independent contractors from the mix and giving them their own form. There are other forms in the 1099 series, but most of them are used for a singular purpose. For example, a 1099-DIV reports just dividend income, and a 1099-R reports only retirement income. But the 1099-MISC form throws a net over other types of income that don't neatly fit into the other form choices.

How Forms 1099-MISC and 1099-NEC Work

Form 1099-MISC works to “increase voluntary compliance and improve collections,” according to the IRS. The payer must report your income to the IRS when you receive reportable income from a person or business that isn't an employer and this incentivizes you to report this income on your tax return because this third-party reporting puts the IRS on notice that you’ve received it.

The issuer of the income might not be required to provide you with a copy of the form, depending on the guidelines for your specific type of 1099-MISC payment. But the IRS considers all 1099 payments as taxable income, so you’re still required to report it even if you don't receive these forms from a payer.

1099-MISC and 1099-NEC Reportable Thresholds

The rule of thumb is that you have to receive ​at least $600​ in non-employee compensation before a payer must provide you with a Form 1099-NEC, but the IRS requires a payer to furnish you with a 1099-MISC if you earn ​at least $10​ in royalties. The instructions for the 1099-MISC form include all reportable thresholds required of various payees who would receive this form.

1099-MISC and 1099-NEC Payers and Payees

Payers or issuers of 1099-MISC income cover a lot of territory, including health care providers that disburse medical payments and organizations that give prizes or awards. Payees or recipients of these payments can be plan participants and prize winners.

Individuals or companies who pay independent contractors for their services must now issue them Forms 1099-NEC. You might receive more than one 1099-NEC form for a tax year if you’re self-employed and receive income from numerous clients.

Form 1099-MISC and 1099-NEC vs. Form W-2

The 1099-MISC form is similar to IRS Form W-2, the "Wage and Tax Statement" in that both forms are referred to as “information returns,” and both forms report income. The primary difference is that you’ll receive a W-2 form if you work for an employer. You'll receive 1099-MISC forms if you have miscellaneous income, or 1099-NEC forms if you have non-employee income.

The W-2 documents income you earn from wages, salaries or tips, but the 1099-MISC and 1099-NEC forms document both earned and unearned income from non-employee sources. You might have unearned income from a prize you won, or you might have earned income as an independent contractor. Both sources are considered non-employees. You receive one form or multiples of each of these information returns, depending on your income sources.

1099-MISC Income Categories

The 2019​ version of this form contains the following fields for reporting different types of income:

  • Box 1: Rents.​ This includes certain types of business rent such as land, office space and machine rental.
  • Box 2: Royalties.​ Examples include royalty payments for copyrights, patents and trademarks.
  • Box 3: Other income.​ This is somewhat of a catchall field for income that does not fit into any of the other income categories.
  • Box 4: Federal income tax withheld.​ If the IRS requires a payer to withhold taxes for backup withholding or Indian gaming profits withholding, this amount is reported in box 4 as tax withheld.
  • Box 5: Fishing boat proceeds.​ If box 5 includes an amount, it means that you earned self-employment income from a fishing boat operator.
  • Box 6: Medical and health care payments.​ This does not include payments to exempt facilities such as nonprofit hospitals.
  • Box 7: Non-employee compensation.​ Typically for independent contractors with earnings of ​more than $600​.
  • Box 8: Substitute payments in lieu of dividends or interest.​ This income field is for brokers who receive what the IRS calls a "substitute payment" of ​more than $10​ from a client instead of dividends or tax-exempt interest from a loan on your securities.
  • Box 9: Payer made direct sales of $5,000 or more of consumer products to a buyer (recipient) for resale.​ Instead of a dollar amount, you'll simply check this box if you received ​$5,000 or more​ from consumer product sales on a buy-sell, deposit-commission or other arrangement.
  • Box 10: Crop insurance proceeds.​ If you received more than ​$600​ from a crop insurance policy, the amount is noted here.
  • Box 13: Excess golden parachute payments.​ This field is for a marginal sector of the workforce. "Golden parachute payments" are high-level executive benefits awarded in the event of a company merger or takeover when an executive is terminated.
  • Box 14: Gross proceeds paid to an attorney.​ These payments reflect only the taxable portion of legal fees in excess of ​$600​.
  • Box 15a: Section 409A deferrals.​ An amount in this field might show current as well as prior-year deferrals under a nonqualified deferred compensation (NQDC) plan, subject to Section 409A guidelines.
  • Box 15b: Section 409A income.​ This field includes NQDC plan amounts that are ​not​ subject to Section 409A guidelines.
  • Boxes 16 through 18: State information.​ These sections report state or local income tax payments withheld.

The 2020​ version of Form 1099-MISC has been narrowed down to the following fields, subject to the same definitions and rules as the ​2019 form​:

  • Box 1: Rents.
  • Box 2: Royalties​ ​box 3: Other income.
  • Box 4: Federal income tax withheld
  • Box 5:​ ​Fishing boat proceeds
  • Box 6: Medical and health care payments.
  • Box 7: Payer made direct sales of $5,000 or more of consumer products to a buyer (recipient) for resale
  • Box 8: Substitute payments in lieu of dividends or interest
  • Box 9:​ ​Crop insurance proceeds
  • Box 10:​ ​Gross proceeds paid to an attorney.
  • Box 12: Section 409A deferrals
  • Box 13: Excess golden parachute payments
  • Box 14: Nonqualified deferred compensation
  • Boxes 15 through 17: State information.

The ​2020Form 1099-NEC includes only five fields:

  • Box 1: Non-employee compensation
  • Box 4: Federal income tax withheld
  • Boxes 5 through 7: State information

The ​2019​ Form 1099-MISC box 7 has been moved to box 1 of the ​2020​ Form 1099-NEC.

Read More:What Is the Form 1099-NEC

1099-MISC and NEC Instructions

The instructions for Forms 1099-MISC and NEC include not only the income reporting categories but also many details, exclusions and exceptions in these categories. These instructions steer taxpayers toward other forms and provide hyperlinks to clarify terms and conditions.

The IRS recommends another publication to help taxpayers navigate the sea of terms and conditions for the 1099-MISC: "General Instructions for Certain Information Returns." You can read it online, download it, or print it.

1099-MISC and NEC Issuing Deadlines

A payer's deadline for furnishing Copy B of the 1099-MISC and 1099-NEC to payees is typically ​Jan. 31​, or the next business day if ​Jan. 31​ falls on a weekend or a federal holiday. An exception exists when you're reporting income in box 8 or box 14. This extends this issuing deadline to ​Feb. 15​. The payer must also furnish Copy A to the IRS by ​Jan. 31​ if payments are reported in box 7 of the ​2019​ Form 1099-MISC, or box 1 of the ​2020​ Form 1099-NEC.

The payer has until ​Feb. 28​ if filing on paper, or until ​April 1​ if filing electronically for any other payments.

Reporting 1099-MISC and NEC Income

You must report any 1099 income you received during the tax year when you file your income tax return, regardless of whether you receive any 1099-MISC or 1099-NEC forms. It used to be that you could choose Form 1040 or Form 1040-A to report 1099 income through the ​2017 tax year​, the returns that were to be filed in ​2018​. But you must use a newly designed Form 1040 beginning with the ​2018 tax year​, for returns filed in ​2019​.

This streamlined Form 1040 combines the old 1040, 1040-A and 1040-EZ forms into one simplified version. Forms 1040-A and 1040-EZ are no longer available. Form 1040 was amended once for the ​2018 tax year​, then again for ​2019​.

Filing 1099-MISC and NEC Tax Returns

You can find all the federal tax forms you need by visiting IRS.gov/forms. The most commonly used tax forms are listed on this page with clickable links to access them, but you can also search for any form or the form’s instructions by typing the form number into the search box at the top of the page.

Check the instructions for each of these forms to determine which form is applicable to your particular tax situation.

You must report any 1099 income you received during the tax year when you file your income tax return, regardless of whether you receive any 1099-MISC or 1099-NEC forms.

E-Filing 1099-MISC and NEC Tax Returns

You have numerous options for electronically reporting your 1099-MISC income if you prefer to take the paperless route to file your tax returns. You can simply hire a tax professional to file your return electronically, or you can use tax-preparation software and e-file your own tax return.

Using efile.com is another option. This IRS-authorized e-file provider charges a nominal fee to walk you through step-by-step prompts to file your federal tax return. Although efile.com doesn't yet offer all the forms in the 1099 series, it does include the 1099-MISC.

The IRS offers another electronic filing option to taxpayers as well. Depending on your income, you can use the IRS “Free File Software” or “Free File Fillable Forms” options to e-file your return for free. Choose the “Free File Software” option if your annual income is ​less than $69,000​ for the ​2019 tax year​. Choose the “Free File Fillable Forms” option if your income is ​more than $69,000​.

"Free File Software" is a self-guided option that's designed for taxpayers who are not well-versed in completing their own tax returns. "Free File Fillable Forms” has a built-in calculator that does the math for you. This option is intended for taxpayers who have some knowledge when it comes to preparing their own taxes.

Correcting a 1099-MISC Tax Return

Mistakes happen. If you forgot to include 1099-MISC or 1099-NEC income on your already filed tax return, file Form 1040X, "Amended U.S. Individual Tax Return," to correct the error. Include the 1099-MISC or 1099-NEC form with Form 1040X, along with payment for any additional tax you might owe.

If you’re anticipating a refund from the original return you filed, wait until you receive it before filing Form 1040X. The IRS typically imposes a penalty for late tax payments at the rate of 0.5 percent for each month or partial month that taxes were unpaid, with a 25 percent cap overall. The IRS might assess a higher penalty if your unreported 1099-MISC income drastically affected the tax bill you owed.