1099-MISC vs 1099-NEC: Differences & deadlines

On paper, making payments seems simple. You receive an item or service, you pay for it, and that should be it. But when tending to certain bills or working with contingent workers, there are some tax specifics you need to know. 

Form 1099-NEC and Form 1099-MISC are Internal Revenue Service (IRS) tax forms that help you report different kinds of payments. Form 1099-NEC covers wages paid out to contractors and freelancers, and Form 1099-MISC concerns rent, awards, and other miscellaneous expenses.

Here’s a guide to the difference between Form 1099-NEC and 1099-MISC and why they’re so important for businesses operating in the United States.

What is Form 1099-MISC?

On Form 1099-MISC, you report payments you’ve made during the year that aren’t reported on other forms—hence the “MISC,” which stands for “miscellaneous.” For a payment to appear on this form, it typically has to be over $600.

Applicable bills include:

• Rent payments: These are typically for business facilities like office spaces or warehouses.
• Royalties: These are paid to individuals who earn from creative works such as books or music or to patent owners for the use of their intellectual property.
• Prizes and awards: These are issued to individuals for winning competitions or achieving notable accomplishments, either in cash or other forms.
• Medical and healthcare payments: These payments are made to healthcare providers for specific services within the business, like health screenings.
• Legal services: This involves compensation paid to lawyers or attorneys for their services, reported as gross proceeds.
• Fishing boat proceeds: These are payments to fishing vessel crew members, which are taxed differently due to the unique nature of their work and compensation structure.

How to file Form 1099-MISC & deadline

Here’s how to fill out Form 1099-MISC:

1. Obtain Form W-9: Before filling out Form 1099-MISC, collect a completed Form W-9 from each recipient. This form provides necessary information such as the taxpayer ID number (TIN), legal name, and address.
2. Verify information: Double-check the details on the W-9 to avoid reporting errors, which could lead to penalties or require corrections later.
3. Identify appropriate boxes: Determine which boxes on Form 1099-MISC correspond to the types of payments you are reporting. For instance, rents are reported in Box 1, royalties in Box 2, and other types of miscellaneous income in the relevant boxes.
4. Report accurately: Enter the total amounts paid during the tax year in the appropriate boxes. Accurate reporting is crucial to avoid potential IRS audits resulting from underreporting or overreporting.
5. Send Copy B to the payee and Copy A to the IRS: Deliver Copy B to the recipients by January 31 following the tax year of the payments. File Copy A with the IRS by March 31 if filing online or by the last day of February if filing by paper.

What is Form 1099-NEC?

Form 1099-NEC reports payments made to any non-employees, including freelancers and contractors. Similar to 1099-MISC, you have to fill out this form if you’ve paid someone more than $600 throughout the tax year. This tells the IRS how much income to expect from that person. 

Here are some of the relevant non-employees who might require this form:

• Independent contractors: These experts in specific fields work independently, often for multiple clients at a time, and they have considerable control over their work hours and conditions.
• Freelancers: Similar to contractors, freelancers generally take on smaller, short-term projects with workloads that may fluctuate significantly from month to month.
• Consultants: These professionals in areas such as management, operations, or finance offer unique insights and solutions tailored to help businesses achieve their objectives.
• U.S. nationals living abroad: It’s also necessary to complete Form 1099 for U.S. citizens or residents who are contractors living outside the U.S.

How to file Form 1099-NEC & deadline

Here’s how to fill out Form 1099-NEC correctly: 

1. Gather all required information: Ensure that you have complete details for each contractor, including their legal name, address, and taxpayer identification number (TIN). This information is usually provided on the Form W-9 they submit when you first engage their services. Confirm the total amount paid to the contractor during the tax year.
2. Fill out Form 1099-NEC for each contractor: For those who received more than $600 in the tax year, fill out a separate Form 1099-NEC. Record the total payment to the contractor in Box 1 and make sure your business details are correctly filled out in the “payer” section.
3. File Copy A with the IRS: Submit this copy to the IRS by January 31 after the tax year for which you’re filing. For example, payments made in 2023 must be reported by January 31, 2024. The IRS FIRE system is a common method for online filing, though some states may require a paper copy as well.
4. Send Copy B to each contractor: This copy, also due by January 31, is for the contractor's records and will be used for their personal tax reporting. It can be sent digitally (with their consent) or via mail.
5. Keep Copy C for your records: Maintain these copies to resolve any potential discrepancies in the future or in case of an IRS audit. Proper record-keeping shows diligence in maintaining tax compliance.

1099-NEC vs. 1099-MISC

Forms 1099-NEC and 1099-MISC are both for reporting different kinds of payments. But 1099-NEC is for freelancer and contractor services, and 1099-MISC is for odd bills and fees, like royalties, rent, and legal services.

Keep in mind that if you later decide to hire a contractor as a permanent employee, Form 1099-NEC no longer applies to them. Instead, you use Form W-2 to report their compensation. 

The situation is also different for payments to international contractors because they don’t typically have to pay taxes in the U.S. Instead of 1099-NEC, international workers use Form W-8BEN to make sure they’re taxed properly. Typically, the contractor or employee fills out the form and their employer files it.

Hiring contractors is simpler with Oyster

When tax season rolls around, it can be hard to keep track of every payment—and the necessary forms that come with it. Use Oyster to simplify the process. 

Oyster automates hiring, onboarding, and payroll for international contractors in over 180 countries. If you’re ever unsure of what forms to use, Oyster’s payroll consultants can give you the guidance you need. 

Save time and energy by consolidating everything into one effective platform. Manage global contractors with Oyster. 

About Oyster‍

Oyster is a global employment platform designed to enable visionary HR leaders to find, engage, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.

Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.