What’s the Difference Between 1099 NEC & 1099 MISC Forms?

Knowing the differences between Form 1099-NEC vs. 1099-MISC in terms of purpose and recipients is crucial to minimizing errors when reporting income to the IRS and filing tax returns.

In truth, both the 1099-NEC and 1099-MISC are just two of the many variations of the IRS’ 1099 forms.

There used to be an overlap in using the 1099-MISC and 1099-NEC forms, but this article will explain all the essential information about both forms—from their uses to their fundamental differences.

Let’s start!

Key Takeaways

• Between 1099-NEC vs. 1099-MISC, the former is used to report payments to independent contractors, while the latter is used to report miscellaneous charges.
• The filing deadline for 1099-MISC is February 28. Businesses must send recipient copies by February 15. The filing deadline for 1099-NEC is January 31st.
• Penalties for failing to furnish 1099-MISC or 1099-NEC forms depend on the time that has passed since missing the IRS deadline.
• Recipients of 1099-MISC and 1099-NEC forms must first furnish a Form W-9 to provide all the critical information their payer needs to complete their 1099 forms.

What is the 1099 NEC Form?

The 1099-NEC form is an IRS form that businesses use to report nonemployee compensation. Nonemployee compensation refers to payments to independent contractors, freelancers, self-employed individuals, and sole proprietors.

While the payees complete a specific project or task for the payer, the former is not included in the company's or business’s payroll.

Nonemployee compensation also applies to the following conditions:

• Payments to individuals or contractors not employed by the company
• Payments to other corporations, an estate, or a partnership
• Payments to external services hired during the business’s lifespan

Benefits, commissions, fees, and prizes and awards granted in exchange for the contractor’s services also count as examples of non-employee compensation.

Self-employed and independent contractors should expect to receive the said form on or before January 31 each year for as long as they were paid at least $600 for non-employee payments within the previous tax year.

Backup Withholding

Businesses may also be required to file a 1099-NEC form if backup withholding applies to their payment.

Backup withholding requires the business or payer to withhold federal income tax from nonemployee compensation and other payments that, under different conditions, are not subject to tax withholding.

History of the Form

The IRS first introduced Form 1099-NEC in 1980. At that time, self-employed individuals used 1099-NEC to report their earnings. However, using the 1099-NEC form was abruptly discontinued in 1982 after the IRS added Box 7 to Form 1099-MISC.

Businesses were then instructed to use Box 7 on 1099-MISC to report non-employee payments. The update confused taxpayers because the items reported in Box 7 had a different deadline than the rest of the items in the 1099-MISC.

In 2020, the IRS revived the 1099-NEC, thereby replacing the 1099-MISC.

What is the 1099 MISC Form?

The 1099-MISC form is used to report specific forms of miscellaneous payments.

These payments include:

• Fishing boat proceeds
• Crop insurance proceeds
• Nonqualified deferred compensation
• Section 409A deferrals
• Medical and healthcare payments made during the operations of the payer’s business or trade
• Legal settlements
• Attorney payments for non-legal services
• Cash payments for any aquatic life, such as fish purchased from an individual whose main livelihood is fishing
• Awards and prizes
• Cash paid or transferred to an individual, estate, or partnership from a notional principal contract
• Direct sales worth at least $5,000 of consumer products to a buyer whose purpose for purchasing the goods is to resell them to other vendors but not to a permanent retail business
• Payments worth at least $10 in royalties or $600 or more in other forms of miscellaneous payment

Landlords who pay contractors, repair and maintenance professionals, and property managers who fulfill services for their property must also provide a 1099-MISC form.

Employers can also use the 1099-MISC form to report deceased employee wages.

An employer uses the 1099-MISC to report all accrued wages, annual leave credits, and other types of compensation paid to the beneficiary after their passing. The reported payments can either be fulfilled within or after the year in which the employee died.

The Difference Between 1099 NEC vs. 1099 MISC Forms

The table below summarizes the key differences between a 1099-NEC and a 1099-MISC form:

If you’re wondering whether to use 1099-NEC vs. 1099-MISC for legal fees, you can use either.

Furnish Form 1099-MISC if you paid an attorney's gross proceeds or profit concerning legal settlements. In this scenario, you use 1099-MISC because you are not paying the attorney for their services.

Rather, the payment sent to the attorney is part of a settlement agreement or a contract.

Use 1099-NEC if you hired an attorney’s services during your business operations or trade and paid their fees. Report the amount paid in Box 1 of your 1099-NEC. In this arrangement, the attorney is hired in the same manner as hiring an independent contractor to complete a job.

Who Can Use (Or Receive) The 1099-Nec Form?

Independent contractors, freelancers, self-employed individuals, and sole proprietors who provide services to a company or business for at least $600 typically receive the 1099-NEC form.

As long as the worker who completed services for a company is not employed or included in the company’s payroll, they are bound to receive a 1099-NEC. Also, the services contractors or workers provide are solely for business purposes.

For sole proprietors, they must be taxed as an LLC sole proprietorship. Businesses can verify this by checking the proprietor’s W-9 form. C-Corporations and S-Corporations use IRS Form 1120 and Form 1120-S to file their tax returns.

U.S. citizens and non-resident aliens can also receive Form 1099-NEC if they fulfill the conditions described above.

Businesses use the 1099-NEC form to report all payments made to independent freelancers and sole proprietors, while the latter use the same form to file their tax returns.

Self-employed individuals and independent contractors must provide their clients with their social security number (SSN) or taxpayer identification number (TIN) to receive their 1099-NEC form.

On the other hand, non-resident aliens may present their Individual Taxpayer Identification Number (ITIN) instead.

Who Can Use (Or Receive) the 1099-MISC Form?

The recipients of the 1099-MISC form are providers of healthcare and medical services, law firms or attorneys, and vendors who have duly fulfilled a W-9 form.

Examples of vendors who may receive a 1099-MISC form are fisherfolk, real estate agents, direct sellers, maintenance and repair professionals, security personnel, and workers in the cleaning, construction, laundry, and parcel and delivery sectors.

Companies or groups that made miscellaneous payments specific to the categories described in the IRS’ instructions for the 1099-MISC form can use or send the 1099-MISC form to the correct recipient.

The payments must have played an integral role in the continuous operation of the payer’s business or trade.

Aside from companies and businesses, the following conditions are considered a form of ‘business or trade,’ according to the IRS:

• Charitable organizations
• Non-exempt cooperative for farmers
• Non-profit organizations
• Fixed-investment trusts
• Qualified employer pension trust
• Trusts governed by a profit-sharing scheme or plan

1099 NEC vs 1099 MISC Form Deadline

The IRS provided different deadlines for filing the 1099-NEC vs. 1099-MISC form to avoid confusion among taxpayers in fulfilling their tax obligations:

1099-MISC Form Deadline

The filing deadline for IRS Form 1099-MISC is February 28 of each year, following the recently completed tax year. If the deadline falls on a holiday or a weekend, the due date is moved to the next business day.

Whenever a tax year is completed and tax season is right around the corner once again, businesses and companies must send the recipient’s copy of Form 1099-MISC on or before February 15.

The February 28 deadline also applies to taxpayers who filed the paper or printed version of their 1099-MISC form. Meanwhile, taxpayers who used e-filing for their tax returns have until March 31 to file their 1099-MISC.

Since the introduction of the IRS File Electronic Returns Electronically (FIRE) system, the IRS continues to encourage taxpayers to file 1099-MISC and other tax forms electronically because it saves time and energy.

1099-NEC Form Deadline

The deadline for Form 1099-NEC is January 31 of each year. The said deadline applies to both 1099-NEC forms filed on paper and electronically.

Payers must ensure to send the recipient’s copies of their 1099-NEC and 1099-MISC forms before the prescribed deadlines, concerning the recipients who also have deadlines to meet when filing their tax returns.

What Are the Penalties for Missing to File 1099 NEC and 1099 MISC Forms?

Let’s compare the penalties for missing the filing deadlines for the 1099-NEC and 1099-MISC forms.

Penalties for Failing to Furnish 1099 Forms

Businesses face penalties for failing to issue recipient copies of 1099-MISC or 1099-NEC before the prescribed deadlines. The penalties are worth $60 to $310 per form. The longer the delay in issuing the forms, the higher the penalties charged to the business.

The maximum penalty rates will also differ for small businesses:

For large businesses, the penalty rates are as follows:

Penalties for Failing to Report 1099 Income

Whether you fail to report your taxable 1009-NEC or 1099-MISC income, you are likely to get penalized by the IRS either way. Reporting your taxable earnings to yield accurate values for your tax liabilities and returns is crucial.

The IRS may impose penalties worth at least 20% of the income you failed to report or the understated tax liability.

For instance, if you mistakenly did not report your 1099-NEC income and end up with $7500 worth of understated tax liability, your penalty will be 20% of $7500, or $1500.

Penalties for Errors in Filing 1099-NEC and 1099-MISC

The penalties for filing or furnishing 1099-NEC and 1099-MISC forms with mistakes vary depending on the error.

There are two categories for erroneous 1099 statements:

• Type 1 Errors. These errors include inputting incorrect payments or amounts by checking the wrong boxes. Even filing a return when there isn’t one is considered a Type 1 Error by the IRS. To correct a Type 1 Error, secure a new 1099-MISC or 1099-NEC form and fill it out with the correct information. Check off the box labeled “corrected” as well. Attach Form 1096 or the summary page used for 1099 forms.
• Type 2 Errors. Errors classified under this category include inputting the wrong Taxpayer Information Number and entering the wrong payer or payee name. To amend Type 2 errors, follow the steps described for correcting Type 1 errors. Next, write or input zero on all the fields that require monetary values.

Finally, write “Filed to Correct (Erroneous Information)” at the top of the attached Form 1096. Do this step for both Type 1 and 2 errors. Send the corrected forms to the IRS.

How to Report Income Via 1099-NEC or 1099-MISC

They are the same when describing the different steps in reporting income via 1099-NEC vs. 1099-MISC.

What’s important is to keep in mind the following pointers to avoid committing errors in furnishing and filing 1099-NEC and 1099-MISC forms:

• Check the IRS instructions. Visit the IRS website to go over and compare the qualifications for using the 1099-NEC vs 1099-MISC forms. One of the critical indicators that you need a 1099 form is if you received at least $10 in royalties or $600 or more in exchange for your services.
• Fill out Form W-9. Completing a W-2 form is a must when a business hires you to complete a project or a service or if you receive any miscellaneous payments or win awards and prizes. The said form is a reference for your payer when they furnish your 1099 form later.
• Furnish the applicable 1099 form. Complete your 1099-NEC or 1099-MISC form. Make sure to fill out the correct boxes and provide accurate information—also, fill out your 1099 form before the prescribed deadline.
• File your tax returns. Report your earnings on your tax returns by April 15. If you need extra time to file all of your returns, contact the IRS and request an extension.

Final Thoughts

Now that you know the difference between a 1099-NEC and a 1099-MISC regarding their uses, penalties, and deadlines, reporting your income and filing your tax returns should be more manageable.

Understanding the purpose of each form is essential to keeping your tax obligations in check at all times. More importantly, differentiating between a 1099-NEC vs a 1099-MISC keeps you from interchanging the two forms and committing errors that may lead to fees and penalties.

1099-NEC vs 1099-MISC FAQ

#1. Do I need to fill out Form 1099 NEC for international contractors?

No, you do not need to fill out Form 1099-NEC for international contractors since they are not obligated to file a US tax return.

But if the international contractor is a U.S. citizen or a U.S. tax resident, you must send a 1099-NEC. You must also obtain either a Form W-8 BEN-E or a Form W-8 BEN from the contractor.

#2. When should I use the 1099 NEC form?

Use the 1099-NEC form to file your tax returns if you are an independent contractor, sole proprietor, freelancer, or self-employed individual who received payment from a business or client worth $600 or more.

As a business owner, you must also use Form 1099-NEC to report your payments to independent contractors and freelancers.

#3. When should I use the 1099 MISC form?

Use the 1099-MISC form if you paid a minimum of $600 in prizes or awards, medical and health care payments, law settlements, fishing boat or crop insurance proceeds, and other miscellaneous payments.

If you are also wondering whether to use 1099-NEC or 1099-MISC for rent, 1099-MISC is the correct form.