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 that are exempt from a 1099 form.
Not everyone receives a 1099. We describe what qualifies as a 1099 vendor in this article.
What is IRS Form 1099-MISC?
Form 1099-MISC is used by payers in business to report specified miscellaneous payments other than nonemployee compensation (that are 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 prepared for any person for which backup withholding for federal income taxes occurs. 1099-MISC is used for payments of $5,000 or more for direct sales of consumer goods (box 7).
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 vendor 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.
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 (excluding attorneys) 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 non-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 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 vendors 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).
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When are Form 1099-MISC and Form 1099-NEC Due?
Some 1099 forms have revised due dates for payees to issue. For due dates in 2023, Forms 1099-NEC are now due on January 31st (if filed either electronically or on paper). Form 1099-MISC is due on February 28, 2023 if filed on paper or March 31, 2023, if filed electronically. Payers no longer get an automatic 30-day extension.
The recipient’s copy of Form 1099-NEC must be sent by January 31, 2023 and Form 1099-MISC by February 15, 2023.
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 on 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.
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, get Executive Summary: KPMG on AP Tax Compliance.”