IRS Form 1099-NEC (nonemployee compensation)
For the 2020 Tax Year, the IRS is requiring a new form, the 1099-NEC to report nonemployee compensation. The 1099-NEC is a whole form dedicated to BOX 7 (nonemployee compensation) formerly on the Form 1099-MISC.
- To whom do you, as a business owner, need to issue a 1099?
- To whom do you NOT need to issue a 1099?
- BONUS QUESTION: What box in the 1099-MISC does the 1099-NEC replace for Tax Year 2020?
Who is required to submit a 1099-NEC?
All businesses must submit a Form 1099-NEC form for nonemployee compensation if all four of these conditions are met regarding a payment:
- It is made to someone who is not your employee.
- It is made for services in the course of your trade or business.
- It was made to an individual, partnership, estate, or corporation.
- The payments made to the payee were at least $600 or more for the year.
Examples of 1099-NEC reporting requirements
Examples of payments you must report on Form 1099-NEC include:
- Professional service fees to attorneys (including law firms established as corporations), accountants, architects, etc.
- Fees paid by one professional to another (fee-splitting, for example)
- Payments for services including payment for parts or materials used to perform the services if they were incidental to the service
- Commissions paid to nonemployee salespeople not repaid during the year
Don’t use Form 1099-NEC to report personal payments. It’s only to be used for payments if you are in a trade or business for profit.
Yes, the 1099-MISC is still required
Form 1099-MISC is still filed for each person to whom you have paid during the year:
- At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
- At least $600 in:
- Prizes and awards.
- Other income payments.
- Medical and health care payments.
- Crop insurance proceeds.
- Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish.
- Generally, the cash paid from a notional principal contract to an individual, partnership, or estate.
- Payments to an attorney for expenses other than legal fees
- Any fishing boat proceeds.
What are the exceptions?
The most common vendors that you don’t need to send a 1099-NEC to are:
- Vendors operating as S or C-Corporations (you’ll find their status out when you get a W-9)
- LLCs or partnerships (ONLY if they are taxed as an S or C-Corp)
- Sellers of merchandise, freight, storage or similar items.
- Payments of rent to or through real estate agents (typically property managers). However, keep in mind you need to issue a 1099 to a landlord you are paying rent, unless they meet another exception.
DO NOT ISSUE 1099-NEC or 1099-MISC
To BIG BOX Chains like Amazon, Best Buy, Home Depot, Lowes, or Telephone/cable companies like AT&T or Verizon,
The W-9 is your best friend.
You may be frustrated that you don’t have the information you need to issue the 1099-NEC. One of the smartest procedures a business owner can implement is to request a W-9 from any vendor you expect to pay more than $600 before you pay them. Using this as a normal business practice will give you the vendor’s mailing information, Tax ID number and also require them to indicate if they are a corporation or not (possibly saving you the headache of sending them a 1099 next year).
Filing dates for 1099-NEC and 1099-MISC
Section 6071(c) of IRS Code requires you to file:
- Form 1099-NEC on or before February 1, 2021, using paper or electronic filing
- Form 1099-MISC by March 1, 2021, if you file on paper, or March 31, 2021, if you file electronically.