Self-employed taxpayers may have noticed this year that they were sent a 1099-NEC instead of the usual 1099-MISC received in the past. This change confused both employers and the employed. Here’s a little more information about what’s going on, so you’re prepared for the next go-round.
In a nutshell, the IRS reinstated Form 1099-NEC to simplify reporting for employers who use self-employed individuals or who make payments to third parties for other business purposes.
The Short Version
Form 1099-NEC (Nonemployed Compensation) was first rolled out in the early 1980s. It was used for taxpayers to declare income earned through self-employment during the year. However, in 1983 the IRS revised Form 1099-MISC, requiring businesses to report the amount of money paid to contractors, consultants, and other self-employed people. This revision did away with the need for Form 1099-NEC, and the form went by the wayside.
The revision to Form 1099-MISC also created a conundrum for employers as they now had two deadlines to manage. The deadline for sending Form 1099-MISC to self-employed people they purchased from during the year was January 31 of the following year. The deadline for sending it to everyone else was February 28.
To clean this situation up, the IRS brought back Form 1099-NEC in 2020, making the due date January 31. This change should help businesses keep the two forms straight. This move also aligns the delivery of Form 1099-NEC with the due date for sending out W2s.
What Does This Mean?
Here’s what all this means for you.
If you’re self-employed, you should expect to receive Form 1099-NEC from every company that has paid you $600 or more during the year. You’ll receive this form in lieu of Form 1099-MISC. If a company sends the wrong form, contact them to get the correct one. Self-employed individuals should report all business revenues earned from clients, whether they receive Form 1099-NEC from them or not.
If you’re an employer, you’ll need to send Form 1099-NEC to all independent contractors, consultants, or other self-employed individuals whom you’ve paid $600 or more during the year. These need to be sent by January 31, 2022, or you’ll risk incurring penalties. Form 1099-MISC should continue to be used for income that’s not subject to self-employment taxes.
Adams Accounting Solutions Helps with 1099 Reporting
If your business uses independent contractors or freelancers, you’ll need to send out Form 1099-NECs before January 31, 2022. Adams Accounting Solutions can help with that. We specialize in small business tax preparation and will help you stay on task and on deadline.
Give us a call at 913-888-9100 if you still have questions about 1099s. We’re happy to help clear up the confusion!
Richard Adams is a graduate of Benedictine College in Atchison, Kansas, with dual majors in Accounting and Business Administration. He is also a graduate of Wentworth Military Academy in Lexington, Missouri.