IRS Rules for Reporting Non-Employee Compensation with Form 1099-NEC

September 27, 2022

Form 1099-NEC replaces Form 1099-MISC for reporting non-employee compensation (in Box 7). The 1099-MISC is still used to report compensation other than non-employee including rents, royalties and crop insurance proceeds.

Direct sales totaling $5,000 or more of consumer products to a recipient for resale can be reported on either form.

Here's some more guidance on the difference between the 1099-MISC and 1099-NEC, and what you need to know to use the forms properly. 

1099-NEC

The 1099-NEC (NEC stands for Non-Employee Compensation) is actually based on an old form that has been out of use since 1982. The IRS revived the form to address some time-management and administrative issues that arose under the Protecting Americans from the Tax Hikes Act of 2015 (the PATH Act). The 1099-NEC captures data that used to be reported in Box 7 of the 1099-MISC, in addition to staggering the filing due dates.

As with the 1099-MISC previously, nonemployee compensation is any payments of $600 or more to nonemployee service providers, such as independent contractors, freelancers, vendors, consultants and other self-employed individuals (commonly referred to as 1099 workers). This is reported in Box 1 of the 1099-NEC, while Box 4 is for indicating federal withholding for that individual worker. State tax withheld, payer state ID number and state income is reported in Boxes 5, 6 and 7.

Why not file your 1099-NEC forms early? As long as you have the required information from any independent contractors for completed work, you can begin filing 1099 forms in the 4th quarter.

Going forward, all of the other income typically reported on a 1099-MISC remains. For example:

  • Crop insurance proceeds in Box 9
  • Gross proceeds to an attorney (not fees) in Box 10
  • Section 409A deferrals in Box 12
  • Nonqualified deferred compensation income in Box 14

Take Note of the 2022 Tax Deadlines

The deadline to distribute the 1099-NEC to recipients is January 31, 2022. This is also the date you must file these forms with the IRS – whether you are filing via paper or electronically. Meeting these deadlines is essential to avoid penalties.

 

About the Author 

Melissa Adams, Tax Compliance Specialist at ComplyRight. From hiring and training, to time tracking and recordkeeping, to labor law posting and tax information reporting, ComplyRight has innovative products and services to address the real‑world challenges employers face every day.

The contents of this article are for informational purposes only. The information should not be relied upon as replacement for professional tax advice.

All content provided herein is for educational purposes only. It is provided “as is” and neither the author nor Office Depot, Inc. warrants the accuracy of the information provided, nor do they assume any responsibility for errors, omissions or contrary interpretation of the subject matter herein.