When to Use 1099 NEC vs 1099 MISC: IRS Filing Guidelines

Beginning with the tax year 2020, the IRS issued a separate information return form to report nonemployee compensation (NEC) payments to independent contractors. Form 1099-MISC for miscellaneous income was redesigned, and NEC-related payments from Box 7 of Form 1099-MISC moved to a new Form 1099-NEC. In January 2024, these 1099 forms were revised again. 

Recipients use Form 1099-NEC (Nonemployee Compensation) and Form 1099-MISC (Miscellaneous Information) to file their federal and any applicable state tax returns. 

Form 1099-NEC doesn’t entirely replace Form 1099-MISC for payers needing to report other miscellaneous types of payments besides non-employee compensation.

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 Form 1099-NEC?

Form 1099-NEC is a new IRS information return tax form for reporting at least $600 in nonemployee compensation payments and tax withholding in the course of a trade or business per calendar year. Nonemployee Compensation meaning is reportable payments are to business owners or independent contractors that don’t file their federal income tax returns as a C Corporation or S Corporation.

Form 1099-NEC is also used for reporting (with a checkmark in box 2) payer direct sales of $5,000 or more in consumer products to the recipient for resale, although these payments can be reported on Form 1099-MISC instead.

Payments made to an individual, partnership, estate, or sometimes a corporation may be reported on Form 1099-NEC. Despite the general exception for corporation payees, reporting attorneys’ fees (Box 1, Form 1099-NEC) or gross proceeds paid to an attorney (Box 10, Form 1099-MISC) of corporations providing legal services is required on Form 1099). 

Independent contractors, whose income payments may be reported by payers on Form 1099-NEC, include:

• freelancers
• self-employed individual, sole proprietor, or small business service providers, including:
  • attorneys
  • CPAs
  • tax professionals
  • real estate agents not paid as employees, using Form W-2

In addition to federal income tax, independent contractors pay federal self-employment tax on their earnings. 

The 1099 for attorney fees is 1099-NEC, whereas gross proceeds from litigation for attorneys is reported on form 1099-MISC.

Independent contractors and other suppliers provide a Form W-9 with their contact information and taxpayer identification number (TIN) to their clients or customers for filing forms 1099-NEC to report nonemployee compensation and backup withholding and 1099-MISC to report miscellaneous types of payments and backup withholding.

Payers send (or efile) a copy of Form 1099-NEC to the IRS, applicable states, and payees. Effective January 1, 2024, the new threshold requiring eFiling of 1099 and other information returns is a combined total of 10 or more (instead of the previous 250 form threshold).

Types of taxpayer identification numbers include SSN (social security number), ITIN (individual taxpayer identification number), ATIN (taxpayer identification number for pending U.S. adoptions), or EIN (employer identification number).

The payer needs to follow the IRS backup withholding rules for nonemployee compensation by withholding income taxes if a payee didn’t provide them with a taxpayer ID number (TIN) or the IRS lets the payer know that the taxpayer identification number for the payee is incorrect.

Instead of filing Form 1099-NEC for nonemployee independent contractors who are nonresident aliens, use Form 1042-S for reporting contractor payments and IRS Form 1042.

What is Form 1099-MISC?

Form 1099-MISC is an IRS form used by payers to report specified types of payments for miscellaneous income, generally over $600, made in the course of a trade or business during a calendar year.

More specifically, payers should file Form 1099-MISC to report these types of income:

• $10 or more in royalties (Box 2) or broker payments in lieu of dividends or tax-exempt interest (Box 8)
• $600 or more in:
  • Prizes and awards, other income payments, and cash paid from a notional principal contract to an individual, partnership, or estate, in general (Box 3);
  • Fishing boat proceeds (Box 5)
  • Medical and health care payments (Box 6)
  • Crop insurance proceeds (Box 9)
  • Payments to an attorney (Box 10) – claims gross income
  • Section 409A deferrals (Box 12)
  • Nonqualified deferred compensation (Box 15)

What is the Difference Between Form 1099-NEC and Form 1099-MISC?

The difference between IRS Form 1099-NEC vs 1099-MISC information returns is that Form 1099-NEC is used by payers to report nonemployee compensation and follow backup withholding rules. Form 1099-MISC is used by payers to report information on other types of miscellaneous nonemployee payments and report backup withholding. 

The IRS provides instructions for tax Form 1099-NEC and Form 1099-MISC with more details about each form and the differences. Read other Tipalti articles covering Form 1099-NEC and Form 1099-MISC for more information, including differences in filing Form 1099-NEC vs Form 1099-MISC.

How Do You File Form 1099-NEC and Form 1099-MISC?

IRS filing requirements specify that payers should use a separate IRS transmittal Form 1096 to send each type of 1099 form by the tax reporting deadlines (to report a calendar year’s payments) when paper-filing Forms 1099-NEC and Forms 1099-MISC with the IRS. The paper 1099 copies and the 1096 transmittal form sent to the IRS, as information return tax filings, must be official, scannable and printable forms that can be ordered from the IRS website. 

Note that, beginning with January 1, 2024, the IRS and Treasury Department changed the eFiling (electronic filing) requirement threshold from 250 to only issuing a total of 10 forms or more (calculated by aggregating all information returns), for mandating eFiling (instead of paper filing) 1099 forms and distribution to payee recipients. The IRS has a new portal for simplifying eFiling that includes filing information returns such as 1099s.

How Do You Submit 1099-NEC and 1099-MISC to the IRS and Recipient?

When the payer eFiles or sends on paper the Forms 1099-NEC and 1099-MISC, Copy A goes to the Internal Revenue Service Center, Copy 1 to the state tax department (if applicable), and Copy B (and also Copy 2 if state income taxes) to the recipient. For Form 1099-NEC Copy B (and possibly Copy 2), the recipient may be an independent contractor. 

Efiling software such as Zenwork Tax1099 can optionally be purchased with SaaS plan pricing and used to file 1099s, including Form 1099 NEC and 1099 MISC, with the IRS and states with income taxes, and distribute a copy to the recipient accessible online or via mail. Tipalti AP automation software natively integrates with Tax1099 software, letting Tipalti software users import 12 calendar months of payments. 

(Zenwork Tax1099 software currently doesn’t support 1099 filing in the state of New York, which does require 1099 filings. )

Which States Do Not Require Filing a 1099?

All states require filing a 1099 except these states:

• Alaska
• Nevada
• New Hampshire
• South Dakota
• Texas
• Washington
• Wyoming

It’s worth noting the following states’ filing requirements as well:

• Hawaii (requires filing 1099-R)
• Idaho (requires filing 1099-B, 1099-R, and 1099G)
• District of Columbia (not a state but a taxing district)
• Florida (requires filing 1099-K)
• Oklahoma (requires filing 1099-NEC, 1099-R, and 1099-G)
• Tennessee (requires filing 1099-K)

Which Items Changed on Form 1099-MISC?

With the January 2024 revision, the 1099-MISC form doesn’t include a form year but allows payers to indicate the calendar year for which payments are being reported in this 1099 information return.

A sample of Form 1099-MISC that shouldn’t be copied and filed with the IRS (because it’s not machine-readable) is shown above. The following items or boxes changed in Form 1099-MISC, beginning with tax year 2020.

Box 7, Form 1099-MISC Changes
Box 7 of Form 1099-MISC for reporting nonemployee compensation was removed from the tax form. Instead, Form 1099-NEC is used to report nonemployee compensation, beginning for the tax year 2020. Box 7 of Form 1099-MISC is a checkbox for payer-made direct sales of $5,000 or more.

Box 9, Form 1099-MISC Change
Report crop insurance proceeds in Box 9 of Form 1099-MISC.

Box 10, Form 1099-MISC Change
Report the gross proceeds to an attorney in Box 10 of Form 1099-MISC, even if the attorney files a corporation return. The gross proceeds are for claims paid to an attorney without deducting attorney’s fees (which would be reported on Form 1099-NEC, Box 1).

Box 12, Form 1099-MISC Change
Report Section 409a deferrals in Box 12 of Form 1099-MISC.

Box 13, Form 1099-MISC Change
If applicable, check the FATCA filing requirement checkbox in Box 13.

Box 14, Form 1099-MISC Change
Use Box 14 of 1099-MISC to report excess golden parachute payments.

Box 15, Form 1099-MISC Change
Use Box 15 of 1099-MISC to report nonqualified deferred compensation income.

Boxes 16, 17 & 18, Form 1099-MISC Changes for State Information
Payer filers use these Form 1099-MISC boxes to report state filing information to each applicable state tax department and recipient needing the information to file a state tax return. 

Box 16 – state taxes withheld
Box 17 – state identification number
Box 18 – amount of income earned in the state

The U.S. has nine states with no income taxes (except as indicated):

1. Alaska (no individual income tax but corporate income tax)
2. Florida (no individual income tax but corporate income tax)
3. Nevada
4. New Hampshire (only interest and dividend earnings for individuals but corporate income tax)
5. South Dakota
6. Tennessee (only interest and dividend earnings  for individuals but corporate income tax)
7. Texas (no individual income tax but gross receipts tax)
8. Washington (no individual income tax but B&O gross receipts tax)
9. Wyoming

Which Items Changed on Form 1099-NEC?

A sample of Form 1099-NEC that shouldn’t be copied and filed with the IRS (because it’s not scannable) is shown above.

With the January 2024 revision, the 1099-NEC form doesn’t include a form year but allows payers to indicate the calendar year for which payments are being reported in this 1099 information return. For example, you can use Form 1099-NEC beginning in 2024 as 1099 Form 2023 and subsequent years as a 1099 Form 2024 or later year tax information return. 

Items reported in Form 1099-NEC include:

• A checkbox for VOID or CORRECTED Form 1099-NEC

• Payer’s and Recipient’s contact information and taxpayer identification number (TIN)

• Account number for payee

• Checkbox for 2nd TIN notice

• Box 1 – Total dollar amount of Nonemployee compensation

• Box 2 – Checkbox for Payer made direct sales totaling $5,000 or more of consumer products to the recipient for resale

• Box 3 – Currently not used

• Box 4 – Federal income tax withheld in dollars

Box 4 is for reporting backup withholding.

• Box 5 – State tax withheld in dollars

• Box 6 – State/Payer’s state number

• Box 7 – State income in dollars (paid to the recipient)

What is the Due Date for Filing Form 1099-NEC and Form 1099-MISC?

For 2025 due dates covering 2024 calendar year payments, the IRS General Instructions indicate the filing deadline for electronic and paper filers of Form 1099-NEC is January 31, 2025, a month after the end of the tax year for which payments are being reported, with no 30-day automatic extension offered. Form 1099-NEC is sent to recipients by January 31, 2025.

Although Form 1099-MISC must be sent to the recipient by February 17, 2025 (if amounts are reported in boxes 8 or 10), payer businesses must file Form 1099-MISC with the IRS by February 28, 2025, if paper filing or March 31, 2025, if eFiling the form with the IRS. If payees have hardship conditions, they may be able to extend the deadline for filing the 1099 information returns.

The IRS imposes deadlines for filing forms 1099-NEC and 1099-MISC to detect fraud and verify the income of payee recipients when they file a U.S. federal tax return during tax season by checking that it includes reportable income from a payer.

Penalties for Not Filling a 1099

The IRS imposes penalties (and interest) on each 1099 and payee statement for not filing and distributing a correct 1099 and payee statement by the deadline. The time for filing information returns may be extended by the IRS upon request by the filer. These 1099-related penalties may be appealed. 

According to the IRS document on information return penalties, the amount of penalties for each information return or payee statement depends on the year due, days late or not yet filed, and whether there is intentional disregard. 

For example, on 1099 information returns and payee statements due in 2025, penalties are for these amounts:

Conclusion

IRS Form 1099-NEC for nonemployee compensation (payments to independent contractors as nonemployees) and Form 1099-MISC for certain Miscellaneous Information and specified types of payments are filed as separate information return forms beginning with the tax year 2020. The payer can report backup withholding on either form. Form 1099-MISC was redesigned by the IRS when the new Form 1099-NEC was created.

We provided the meaning of what is 1099-NEC and 1099-MISC, usage, what is the difference between 1099 MISC and 1099 NEC, and filing deadlines for IRS Form 1099-NEC and Form 1099-MISC information returns. Consult your CPA or attorney and the detailed IRS Instructions for these forms when you prepare them to eFile or send as a payer by the deadlines, or receive the forms as a nonemployee payee. 

To understand global supplier tax compliance with 1099s and how to streamline taxes for your business, explore Tipalti’s Tax Compliance Automation solution.