What Is 1099 NEC? Are you still using 1099 MISC box 7 to report non-employee compensation? Do you know about form 1099 NEC? Don’t worry. Here you can get a clear clarification regarding 1099 NEC form, why the form 1099 NEC replaced 1099 MISC box 7 and what type of compensations you need to report through the form 1099 NEC.
1099 NEC form:
The IRS 1099 NEC is a replacement of the old form which was introduced in 1982, by the IRS. This form reports self employment incomes to the IRS. In the tax year 2020, the non-employee compensations reported through the fillable form 1099 NEC to the IRS.
Why the form 1099 NEC replaced 1099 MISC box 7?
1099 MISC form used to report all the miscellaneous income to the IRS. Miscellaneous income includes rent, prizes, awards, rewards, royalties etc. The form 1099 MISC used to report your earnings when you worked as an independent contractor. These incomes report through box 7 in the form 1099 MISC. Due to dual filing deadlines of the form 1099 MISC, the IRS doesn’t have time to recheck the forms and led to fraudulent activities. Payers also get confuse while filing 1099 MISC regarding self-employment payments.
This made the IRS to re-introduce the form 1099 NEC for the payers. The 1099 NEC form cleared confusion raised through the form 1099 online MISC. This form uses to report the non-employee compensation in box 1. The form 1099 NEC has a single filing deadline. As a result, 1099 MISC box 7 is now the form 1099 NEC.
What are the types of compensation reported by the form 1099 NEC?
Form 1099 NEC reports all the non-employee compensation to the IRS. If you pay an individual person more than $600, then this considers a non-employee payment. A non-employee payment is a payment given to an individual person or a contractor, who is not your employee but works for your business or trade.
The compensations reported through form 1099 NEC include:
- Fees
- Commissions
- Awards
- Prizes
- Other services
What you report through form 1099 NEC?
The following payments reported to the IRS through form 1099 NEC:
- An individual contractor receives $600 or more.
- Resale of $5,000 or more consumer goods of direct sale.
- Crop insurance proceeds of $600 or more.
- Gross proceeds paid to an attorney of $600 or more.
- Resale of fish purchases paid in cash of $600 or more.
What are the four conditions required to file form 1099 NEC?
File the form 1099 NEC if the following four conditions are met:
- Payments of an individual person who is not your employee.
- The individual person is working for your business or trade.
- The annual payment for an individual person exceeds $600.
- Payments done to an individual, contractor, partnership or estate.
Can you report payments made to an individual person or personal payments in the form 1099 NEC?
No, you are not supposed to report payments made to an individual or personal payments in the form 1099 NEC. Instead, you can report non employee compensation through 1099 NEC to the IRS.
If you are a payee and you are paying an individual contractor a sum of $450. Does it needed to report this payment to the IRS?
No. If you are paying an individual person less than $600, there is no need of reporting the payment to the IRS. If the payment is less than $600, the form 1099 NEC is not required and should not be issued.
What are the five key parts of the form 1099 NEC?
There are five key parts to the form 1099 NEC. They are:
- Payer’s information.
- Payee information.
- Non employee compensation amount.
- Withheld of any federal income tax amount.
- State information.
When a non-employee compensation subjects to backup withholding tax?
If a payee has not provided a Tax Payer Identification Number to the payer or the IRS notifies the payer that the Tax Payer Identification Number provided incorrect. Then the non-employee compensation may be subject to backup withholding tax.
What does a tax payer identification number include?
A tax payer identification number includes:
- Social security.
- Employer identification.
- Individual taxpayer identification.
- Adoption taxpayer identification.
Payments that not report through form 1099 NEC:
- Distributions from pensions, annuities, retirement or profit sharing plans.
- Payments to a tax exempt organizations.
- Cost of Current Life Insure Protections.
File 1099 NEC to report non employee compensation instead of reporting with 1099 MISC Box 7. E file 1099 NEC Online for 2020 in minutes easily.