Say you’ve hired an independent contractor or freelancer to take on some blog posts for your business development team. For each article, you pay $200. After three published pieces, you officially need to file with the IRS, but where do you begin? Do you pick Form 1099-Nec or Form 1099-Misc?
Tax forms for freelancers and other independent contractors can be a headache. But not as much of a headache as the penalties for not being compliant when classifying or paying your contractors.
We’ve put together a guide to the difference between forms 1099-Nec vs.1099-Misc so you can make sure you’re filing the correct forms.
What Is Form 1099-Nec?
Form 1099-Nec is the form that businesses use to report payments they make to independent contractors, self proprietors, freelancers, and other self-employed people who do contract work with the company but aren’t full-time employees. The “NEC” in the form’s name stands for non-employee compensation—so, essentially, it reports all compensation to people who aren’t employees.
Who Requires Form 1099-Nec?
Businesses will file a Form 1099-Nec for anyone who isn’t an employee that the company paid more than $600 in compensation during the year.
What Is Form 1099-Misc?
The Form 1099-Misc reports miscellaneous income. According to the IRS, this means that you’d need this form for each person that you paid at least $10 in royalties or broker payments, or at least $600 in:
- Rent
- Prizes
- Awards
- Medical or health care payments
- Crop insurance proceeds
- Fishing boat proceedings
- Attorney payments
Originally, the Form 1099-Misc reported contractor or sole proprietor income, but it is now used only to report miscellaneous payments.
Who Requires Form 1099-Misc?
A business needs to file a Form 1099-Misc if they paid more than $600 to someone who isn’t on their payroll for miscellaneous expenses like rent, prizes, awards, or attorney payments.
Form 1099-Nec vs. Form 1099-Misc
You’ll use Form 1099-Nec and Form 1099-Misc for payments of more than $600 throughout a calendar year to someone who isn’t on your payroll. The difference is what those payments are for.
Form 1099-Misc used to cover payments made to independent contractors or sole proprietors, but those payments are now covered by the Form 1099-Nec instead. Form 1099-Misc is for other, non-income payments of more than $600 to someone who isn’t an employee at your company.
Simply put:
- Form 1099-Nec. Needed for independent contractors, sole proprietors, freelancers, or contractors who your company paid more than $600.
- Form 1099-Misc. Needed for miscellaneous payments like rent or fees of more than $600.
How to File Form 1099-Nec
Here’s what you’ll need to know to fill out and file Form 1099-Nec.
1. Gather Your Materials
To fill out Form 1099-Nec, you’ll need your recipient’s W-9. Their W-9 form will give you any information you need to fill out the 1099.
The information you’ll receive from the W-9 form will include the recipient’s:
- Name
- Business entity or relationship (freelancer, proprietor, contractor, business, etc.)
- Address
- Taxpayer identification (SSN, EIN, etc.)
2. Fill Out the Form
The payer fills out Form 1099-Nec. To do so, you’ll need to input your own business’s information as well as your recipient’s information. You’ll also include how much you paid the contractor and how much tax (if any) was withheld.
The boxes you’ll fill out on Form 1099-Nec are:
- Payer name or business
- Payer’s tax information
- Recipient’s name or business name
- Account number (if applicable)
- Nonemployee compensation
- State withholdings (if applicable)
- Federal withholdings (if applicable)
3. Send the Form
You’ll need to submit two copies of Form 1099-Nec:
- Copy A. This copy will go to the IRS. You can file this physically or via the IRS’ online portal. You must submit Copy A by Jan. 31—if Jan. 31 is not a weekday, it will be due the following business day.
- Copy B. You’ll send Copy B to the contractor or freelancer, but you’ll need to get consent first. You must show the IRS written consent from the contractor stating that they understand how, when, and why they’re going to be receiving the form.
Depending where you live, you may also need to file the form with the state. The following states do not require you to file with the state:
- Alaska
- Florida
- Illinois
- Nevada
- New Hampshire
- New York
- South Dakota
- Tennessee
- Texas
- Washington
- Wyoming
If you live in any other state, you will need to file Form 1099-Nec. If you filed electronically, the IRS will sometimes file with the state for you. A compliance partner can help navigate exactly where and when you need to file.
How to File Form 1099-Misc
Filing Form 1099-Misc is similar to filing the 1099-Nec, but there are a few more sections on the miscellaneous form.
1. Gather Your Materials
Just like the 1099-Nec, you’ll start by gathering your recipient’s information and your payment information. However, you’ll also need to keep track of your miscellaneous payment information and have that on hand as well.
2. Fill Out the Form
To fill out Form 1099-Misc, you’ll need to input your information, your recipient’s information, and any relevant payment information.
To start, you’ll need:
- Payer’s name and address
- Payer’s tax information
- Recipient’s name and address
- Recipient’s tax information
From there, you’ll see boxes broken down by payment type correlating to the type of miscellaneous payments reported by Form 1099-Misc. You’ll input your payment information as needed down the line.
These boxes include:
- Rents
- Royalties
- Fishing boat proceeds
- Crop insurance proceeds
- Fish purchased for resale
Any payments that match these categories will be inputted in their labeled box.
3. Send the Form
Just like Form 1099-Nec, you’ll send one copy of Form 1099-Misc to the recipient and the other to the IRS. This can be done via physical mail or an online portal. Keep in mind that this must be done before the tax deadline or you could face penalties.
Keep Your Contractors Compliant
Contractors can be tricky. From hiring one, to converting them to an employee, or making sure they’re paid correctly, there are many things businesses must consider before deciding to bring contractors into their offices. A global workforce partner can help companies connect with and pay contractors across the globe.
Contact us to see how Velocity Global helps you stay compliant with any payments you make to contractors.
