Form 1099-MISC vs Form 1099-NEC

How are they Different?

For the tax year 2020, the IRS introduced new forms. Here is an example of 2 of the forms: 1099-MISC and 1099-NEC

Form 1099-MISC

Form 1099-MISC reports the total amount of payments a person receives from a single person or company during the tax year. The IRS requires any person or business to report certain types of payments on a 1099-MISC Form and to the IRS. The type of payments the IRS requires to be reported on this form are:

Form 1099-MISC used to be most commonly used for reporting earnings of independent contractors and consultants, both types of employment where the person employed is not an employee of the company.

  • Rent
  • Royalties
  • Prizes
  • Awards and substitute payments in lieu of dividends

This is also known as nonemployee compensation.

Starting in the 2020 tax year all nonemployee compensation will be reported on a new form, Form 1099-NEC.

Form 1099-NEC

Form 1099-NEC is a form dedicated to only nonemployee compensation, also known as self-employment income. This is the income that is received when someone is employed by an employer as an independent contractor versus an employee. Basically, Form 1099-NEC is an entire form dedicated to Box 7 on Form 1099-MISC. Subsequently, for tax year 2020, Box 7 has been removed from Form 1099-MISC. Essentially, Form 1099-NEC serves a similar purpose as Form W-2 does for employees. That purpose is to report the total amount of payments a person receives from a single person or business during the tax year.

Why did the IRS create Form 1099-NEC?

There are two main reasons why it made sense for the IRS to designate a form specifically for nonemployee compensation.

  1. More and more people are working as independent contractors making it make more sense to have a tax form dedicated specifically to this income.
  2. Previously, when nonemployee compensation was reported on Form 1099-MISC, it had a different deadline date than the form itself. Therefore, it didn’t make sense to use one form for payments that have two different deadline dates with the IRS.

QuickBooks: Please Observe January Tax Due Dates

New 2020 Filing DateFormFiscal Year Filers
January 15, 2021Form 941 for monthly payroll filers)
January 25, 2021Form 940 (Electronic and Mail)January 25, 2021
January 31, 2021Form W-2 (Electronic and Mail). W-3January 31st, 2021
January 31, 2021Form 941 for 4th Qtr 2020 January 31st, 2021
January 31, 2021Form 1099-Misc w/Box 7, Non-Employee CompensationJanuary 31st, 2021

Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return

due 1/25/21 if you either owe, or if your Federal Unemployment taxes were less than $500 for all of 2020.

February 1 is the deadline for employers to issue and file wage statements

Since January 31, 2021 falls on a Sunday, please make sure that you file your paperwork electronically or mail by Feb 1 , 2021: Form 941 (4th Qtr 2020), W2 and W3