Bookkeeping 101: What’s the difference between 1099-NEC and 1099-MISC?
“I love doing my taxes!” said nobody ever. It makes sense why we all avoid thinking about our annual tax reports until the very last minute. They’re tedious and hard to understand—especially the different codenames for all those forms.
If you’re a small business owner and have ever paid vendors, independent contractors, freelancers, consultants, suppliers, or distributors, you’ve probably already filed 1099 forms (or your accountant did it for you). But what’s the difference between the 1099-NEC and the 1099-MISC forms? Let’s break it down.
First of all, why are there two forms for the same thing?
For the last 30+ years, there has been only one 1099 form that business owners needed to file to report their payments to contractors (codename: 1099-MISC). But in 2020, the IRS reintroduced a vintage tax form (1099-NEC) that hasn’t been used since 1983.
Fine wine and music from the 80s making a comeback? Fun. Another tax form to file? Not so fun. Now, you may need to file both forms depending on who you’ve paid this year. And the forms have different due dates.
So here are the details of what’s included on each form and when they’re due.
The MISC stands for miscellaneous and this form is exactly that. It is a mashup of all your annual business expenses. In the exact words of the IRS this includes:
- At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
- At least $600 in:
- Prizes and awards
- Other income payments
- Generally, the cash paid from a notional principal contract to an individual, partnership, or estate
- Any fishing boat proceeds
- Medical and health care payments
- Crop insurance proceeds
- Gross proceeds paid to an attorney
- Section 409A deferrals; or
- Non-qualified deferred compensation
Rent, insurance and a lawyer are staples for many small businesses. Maybe you’re trying to find Nemo and that boat part is also super relevant for you. Simply put, if you’ve paid more than $600 in these categories, then you’re definitely filing this form.
There used to be a box on the 1099-MISC for all your non-employee compensation (aka paying contractors, freelancers, suppliers, and distributors). That box doesn’t exist anymore. It has now become a separate form, our old friend, Form 1099-NEC.
If you file on paper, Form 1099-MISC is due March 1. If you file electronically, it’s due March 31.
NEC = non-employee compensation. This form is for reporting any payments you’ve made to self-employed workers, vendors, contractors, freelancers, suppliers, and distributors throughout the year to the IRS.
You need to file Form 1099-NEC on paper or electronically by January 31.
Get ahead of tax season
As a business owner, it’s important to understand which financial information you need to keep track of throughout the year so you (or your accountant) can file your taxes properly. If you’ve ever paid for rent, insurance, a lawyer, an accountant or have hired any 1099 contractors, you’ll need to indicate this on your 1099 forms.
It’s super easy to get a breakdown of all these expenses if you use an online business payment solution like Melio. In a few clicks, you can download a summary of all the payments you need to account for on your taxes. Pass that to your accountant, or do a quick calculation yourself to see the totals that should be added to your MISC and NEC forms.
TL;DR (thoughtful length; did read)
Form 1099-NEC is for payments you make to vendors. Form 1099-MISC is for all your other various business payments. Now, you’re more of a tax expert than you were a few minutes ago. Go out and impress absolutely nobody with these financial tidbits at happy hour!