We’ve paired this article with Laurie Hatten-Boyd’s AP Tax Compliance webinar. Get your Executive Summary to find out how FATCA requirements impact organizations with a global supplier base.
Before the tax year 2020, payees reported non-employee compensation, vendor sales, and specified payments on IRS Form 1099-MISC information returns. In 2020, the IRS split reporting into either Form 1099-MISC or a new form, 1099-NEC, for nonemployee compensation. The IRS also issued a new Form 1099-MISC with revised box numbers for reporting the remaining miscellaneous income payments.
Payers are required to track payments with adequate bookkeeping during the year to later prepare information returns 1099-NEC and 1099-MISC. They should get W-9 forms from U.S. business service providers and Form W-8BEN certifications or other required forms from foreigners who are exempt from a 1099 form.
Not everyone receives a 1099. We describe what qualifies as a 1099 vendor in this article. This article isn’t intended to give you tax or legal advice. Consult your CPA or attorney and read Form 1099-NEC and 1099-MISC instructions, including filing requirements, on the Internal Revenue Service website at irs.gov.
What is IRS Form 1099-MISC?
Form 1099-MISC is used by payers in business to report specified miscellaneous payments other than nonemployee compensation (mostly $600 or more). Form 1099-MISC includes multiple boxes with the information required by the payee to file a U.S. tax return.
1099-MISC is also prepared for any person for which backup withholding for federal income taxes occurs for this type of income. 1099-MISC is used (to mark in a check box) payments of $5,000 or more for direct sales of consumer goods (box 7), although receiving these payments can also be reported as a checkmark in box 2 of Form 1099-NEC.
Form 1099-MISC is used to report royalties or broker payments instead of dividends or tax-exempt interest if the amount is at least $10.
Gross proceeds paid to attorneys for claims is still reported on Form 1099-MISC, instead of Form 1099-NEC, without separately reporting the attorney’s fees deducted from the claim proceeds.
Who Should Receive Form 1099-MISC?
U.S. payees filing a Form W-9 with the payer should receive Form 1099-MISC for certain miscellaneous business payments received totaling at least $600, excluding nonemployee compensation (which is reported separately by the payer on Form 1099-NEC) and for other specified transactions described in IRS Form 1099-MISC instructions.
Payers prepare Form 1099-MISC using W-9 forms from their suppliers or vendors and distribute copies to the payee recipients and to the IRS and applicable state governments with income taxes.
What is IRS Form 1099-NEC?
Form 1099-NEC is used by payers to report $600 or more paid in nonemployee compensation for business services. The IRS issued Form 1099-NEC for use beginning with tax year 2020 instead of Form 1099-MISC. Payers fill out the form, send it to independent contractors paid at least $600 in a calendar year, and file a copy with the IRS.
Who Should Receive Form 1099-NEC?
Independent contractors, like freelancers and real estate agents, in the U.S. (citizens or resident aliens) filing a Form W-9 and other business service providers not on the payroll (receiving Form W-2) should expect to receive Form 1099-NEC from each client for payments exceeding the $600 or more reporting threshold. They should use Form 1099-NEC to file their U.S. federal income tax and state tax returns (usually on Schedule C).
Independent contractors are self-employed small business owners. To receive a 1099-NEC, these contractors need to provide client payers with their taxpayer identification number (TIN), which is either a social security number (SSN) or employee identification number (EIN) for a U.S. individual or ITIN for a non-resident alien. These numbers, other than SSN, are issued by the Internal Revenue Service (IRS).
Simplify your company’s 1099 compliance.
Automate reports for preparing your 1099-NEC and 1099-MISC forms and optionally automatically eFile 1099s.
When are Form 1099-MISC and Form 1099-NEC Due?
Some 1099 forms have revised due dates for payers to issue. For due dates in 2025, Forms 1099-NEC are now due to the IRS and applicable states on January 31st (if filed either electronically or on paper). Form 1099-MISC is due on February 28, 2025, if filed on paper, or March 31, 2025, if filed electronically. Payers no longer get an automatic 30-day extension.
The recipient’s copy of Form 1099-NEC or 1099-MISC must be sent by January 31, 2025, or send Form 1099-MISC by February 17, 2025, if amounts are reported in boxes 8 or 10.
Who Doesn’t Need to Receive a Form 1099-MISC or 1099-NEC?
Generally, C corporations, S Corporations, and LLCs formed as corporations or S Corps don’t need to receive a 1099-NEC or 1099-MISC. On irs.gov, check the 1099-NEC instructions and 1099-MISC instructions for exceptions when you are required to issue a 1099.
As an exception, attorneys should receive a 1099-NEC for services (except if deducted from a legal claim payment) and a 1099-MISC for legal settlement proceeds paid to attorneys, even if the attorney’s firm is a corporation. And certain healthcare payments should also still be reported for corporations and S-Corps on 1099 forms.
Generally, a 1099 is not required to be issued for international vendors who are foreign vendors.
Individuals living outside the United States who qualify to file an IRS Form W-8BEN as foreign persons/foreign contractors and don’t perform services in the United States, don’t get a Form 1099-NEC. Form W-8BEN is Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding and Reporting (Individuals).
Beneficial owners in foreign countries complete different forms, depending on whether they perform personal services, which are Form W-8ECI or Form 8233 or Form W-4.
Foreign entities qualified to use Form W-8BEN-E don’t need to get a Form 1099-NEC for services performed or 1099-MISC, which includes interest and dividend income.
Forms W-8BEN and W-8-BEN-E also exempt foreign filers of certain other forms, including intermediaries that file Form W-8-IMY, from receiving a Form 1099-NEC and Form 1099-MISC.
Conclusion
Deciding which global supplier payees should receive a 1099-MISC or 1099-NEC tax form requires some tax knowledge. To understand global supplier tax compliance with 1099s, read the white paper.
