The year 2020 has brought on a lot of new changes for business owners and individuals alike. One major change is a redesigned Form 1099-MISC, thanks to the comeback of Form 1099-NEC. Learn about the recent changes, how to fill out Form 1099-MISC, and where to send yours once it’s good to go.
Form 1099-MISC overview
Form 1099-MISC, Miscellaneous Income, is an information return businesses use to report payments and miscellaneous income.
File Form 1099-MISC for each person you have given the following types of payments in the course of your business during the tax year:
- At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
- At least $600 in the following:
- Prizes and awards
- Other income payments
- Cash from a notional principal contract to an individual, a partnership or an estate
- Any fishing boat proceeds
- Medical and health care payments
- Crop insurance proceeds
- Payments to an attorney
- Section 409A deferrals
- Nonqualified deferred compensation
Also file Form 1099-MISC for each person you withheld federal income tax from under the backup withholding rules (regardless of the payment amount).
As of tax year 2020, do not use Form 1099-MISC to report contractor payments. This is where Form 1099-NEC comes in. And as always, don’t use a 1099 for W-2 employees.
If you fill out Form 1099-MISC, you also need to complete and send a copy of Form 1096 to the IRS. Form 1096 is a summary form of all the Forms 1099 you file. Show the total amount of miscellaneous income you paid throughout the year on Form 1096.
Form 1099-MISC vs. Form 1099-NEC
In the past, businesses had to use Form 1099-MISC to report independent contractor payments in addition to the other types of miscellaneous income. However in 2020, the IRS brought back Form 1099-NEC, Nonemployee Compensation, to report nonemployee compensation. Business owners used to report nonemployee compensation on Form 1099-NEC until 1982.
So, what is Form 1099-NEC? Good question. Form 1099-NEC is solely used to report independent contractor payments. Starting in 2020, business owners must use Form 1099-NEC to report nonemployee compensation.
Nonemployee compensation typically includes the following payment types to independent contractors:
- Other forms of compensation for services
Unlike previous years, do not use Form 1099-MISC to report nonemployee compensation. Instead, use Form 1099-NEC for nonemployee compensation payments. According to the IRS, you must file Form 1099-NEC if you paid $600 or more in:
- Services performed by someone who is not your employee OR
- Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish OR
- Payments to an attorney
Form 1099-NEC is not a replacement for Form 1099-MISC. Form 1099-NEC only replaces the use of Form 1099-MISC for reporting independent contractor payments. You may need to file both Forms 1099-MISC and 1099-NEC.
Preparing to fill out Form 1099-MISC
Before you fill out Form 1099-MISC, you need to gather some information. You should have the following on hand to fill out the 1099-MISC form:
- Payer’s (that’s you!) name, address, and phone number
- Your TIN (Taxpayer Identification Number)
- Recipient’s TIN
- Recipient’s name and address
- Your account number, if applicable
- Amount you paid the recipient in the tax year
How to fill out Form 1099-MISC
If you have experience filling out Form 1099-MISC, you may notice a few things have changed on the 2020 version of the form. The biggest change you’ll notice is Box 7. This is due to the resurrection of Form 1099-NEC.
Worried about filling out the new version? No worries. Let’s take a look at how to fill out the newly-redesigned form, shall we? Here’s what each box means on the form:
- 1: Rents – Enter amounts of $600 or more for all types of rents (e.g., real estate, machine, pasture).
- 2: Royalties – Enter gross royalty payments (or similar amounts) of $10 or more.
- 3: Other income – Enter other income of $600 or more required to be reported on Form 1099-MISC that is not reportable in one of the other boxes on the form.
- 4: Federal income tax withheld – Enter any backup withholding, if applicable.
- 5: Fishing boat proceeds – Enter the individual’s share of all proceeds from the sale of a catch or the FMV (fair market value) of a distribution in kind to each crew member of fishing boats with normally fewer than 10 crew members.
- 6: Medical and health care payments – Enter payments of $600 or more made to each physician or other supplier or provider of medical or health care services.
- 7: Payer made direct sales of $5,000 or more of consumer products to a buyer (recipient) for resale – Enter “X” in this checkbox if the statement applies to you. Do not enter a dollar amount in Box 7.
- 8: Substitute payments in lieu of dividends or interest – Enter aggregate payments of at least $10 of substitute payments received by a broker for a customer in lieu of dividends or tax-exempt interest as a result of a loan of a customer’s securities.
- 9: Crop insurance proceeds – Enter crop insurance proceeds of $600 or more.
- 10: Gross proceeds paid to an attorney – Enter gross proceeds of $600 or more paid to an attorney in connection with legal services.
- 11: N/A – Leave Box 11 blank.
- 12: Section 409A deferrals – You are not required to complete this box. For details, see Notice 2008-115.
- 13: Excess golden parachute payments – Enter any excess golden parachute payments.
- 14: Nonqualified deferred compensation – Enter all amounts deferred (including earnings on amounts deferred) that are includible in income under section 409A because the nonqualified deferred compensation (NQDC) plan fails to satisfy the requirements of section 409A.
- 15 – 17: State information – These boxes may be used by payers who participate in the Combined Federal/State Filing Program and/or who are required to file paper copies of this form with a state tax department.
To fill out Form 1099-MISC, follow the steps below:
- Input your information (aka payer’s information)
- Add in the recipient’s information
- Fill in the totals in the applicable boxes
For more information about filling out Form 1099-MISC, check out the IRS’s Form 1099-MISC Instructions.
Sending Form 1099-MISC
Once you know how to fill out a 1099, you need to know where to send it. You might have noticed that there are several copies for each Form 1099-MISC. Certain copies go to the 1099 recipient, the IRS, and the state tax department. Some copies are for your records.
Check out where you send each part of Form 1099:
- Copy A: The IRS
- Copy 1: The state tax department (if applicable)
- Copy B: The recipient
- Copy 2: The recipient
- Copy C: Keep in your records
Form 1099-MISC deadline
With the new Form 1099-NEC being brought into the mix, Form 1099-MISC has a new deadline.
If you plan on using the paper form, File Form 1099-MISC by March 1, 2021. Form 1099-MISC has a due date of March 31, 2021 if you file electronically. Send Copy B of Form 1099-MISC to the recipient no later than February 1, 2021.
To steer clear of late-filing penalties, file Form 1099-MISC on time.
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This article has been updated from its original publication date of December 22, 2016.
This is not intended as legal advice; for more information, please click here.