The New 1099 Form
The new 1099 form isn't exactly new, it just hasn’t been used since 1982 under Ronald Reagan. The IRS decided to redesign the old Form 1099-MISC and implement the new 1099-NEC for the 2020 tax year. So what is the 1099-NEC form, and who gets it?
What Is the 1099-NEC Form?
The 1099-NEC reports non-employee compensation. In non-IRS speak, that means it records income from anyone that isn’t your employer. It reports how much you received during the year as well as what type of income it was. Note that this form does not record personal payments, only payments in exchange for trade or business.
Who Gets the 1099-NEC Form?
All sorts of people get 1099 forms for different reasons, so it can get a little tricky. A good example of who gets a 1099 are freelancers and independent contractors. The 1099 shows how much the freelancer or contractor was paid by the client, and that it was for a business transaction. Another example is if your business paid for a professional service like fees to an attorney, accountant, or architect.
If you received a 1099 from your employer, then they consider you an independent contractor, not an employee. This is different from a W-2, which is given to employees. Generally 1099s are used to record fees, commissions, prizes, awards, and any other form of compensation for your services.
Nonemployee compensation should only be reported IF it meets all four conditions:
The individual you paid was not an employee
The payment was for services for your business
You made the payment to an individual, estate, or partnership
Total payments were at least $600 during the year
You can also receive different versions of the 1099 form from other entities. For example, lenders can send you a 1099-A or 1099-C if you’ve had debt canceled. Why? Canceled debt is a form of income, and therefore taxable. If you were on unemployment for a portion of the year--which many were in 2020--you could receive a 1099-G from the state or federal government.
Before an independent contractor can file a 1099-NEC, you must provide them with a W-9. Then using that information, you can fill out their 1099 and distribute it to them. On the form, you must include:
● Your name, address, phone number
● Taxpayer ID number
● Recipient's name, address, Taxpayer ID
● Total amount of nonemployee compensation (what you paid them)
● Federal and state income tax withheld
The best way to get a Form 1099-NEC is by downloading a copy directly from the IRS website. It is technically possible to request a paper copy to be sent to you by mail. However, at the time of this article's writing, the National Distribution Center is closed due to the pandemic.
You can file Form 1099-NEC electronically or mail it in, however where you mail it depends on your state. There are several copies of the form that must be given to the IRS, state tax department (if applicable), independent contractor, and one for your own records. The deadline for the Form 1099 is January 31st after the reporting year.
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