What is Form 1099-NEC for Nonemployee Compensation
What you need to know about the new way, starting in 2020, to file nonemployee compensation.
Form 1099-NEC is a form dedicated specifically to nonemployee compensation. It was released by the IRS is mid 2019, the first year it will be used is for tax year 2020.
Form 1099-NEC essentially replaces box 7 (labeled nonemployee compensation) on form 1099-MISC. Subsequently, box 7 on form 1099-MISC for tax year 2020 has been removed. Actually, this new form was an old form that has not been in use since 1982. Because there were separate filling dates for box 7 on the 1099-MISC and the other types of compensation reported on form 1099-MISC, it made sense for the IRS to separate box 7 into its own form. For links to download these forms, including their instructions, please scroll to the bottom of this post.
What is nonemployee compensation?
Nonemployee compensation is any compensation earned by an individual that does work as an independent contractor or self employed. Essentially, nonemployee compensation is compensation earned from a company when the individual compensated is not on a the payroll. However, for purposes of reporting nonemployee compensation on Form 1099-NEC it is a bit more complicated than that. According to the IRS payment must be reported if all of four conditions are met.
- The compensation is made to someone who is not an employee
- The compensation is made for services in the course of trade or business
- The compensation is made to an individual, partnership, estate, or, in some cases, a corporation
- The compensation made to the payee is at least $600 or more for the year
Examples of nonemployee compensation
- Professional service fees, such as those paid to accountants, lawyers and architects
- Payments to an independent contractor, consultant, freelancer, or other independent worker
- Commissions paid to a nonemployee salesperson
- Witness or expert witness fees
- Payments for services (this includes parts and materials required to perform the services)
A form 1099-NEC must also be filed for anyone who has federal income tax withheld under the backup withholding rules, even if the amount is less than $600.
When not to use For 1099-NEC
Form 1099-NEC is not for use to report personal payments, it is only intended for compensation earned in the course of doing trade or business for a profit. Further, don’t use Form 1099-NEC to report employee compensation. Use Form W-2 to report employee compensation.
Use Form 1099-MISC for payments of real estate rent. Also, don’t use Form 1099-NEC for payments to tax-exempt organizations.
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