filling out forms 1099-misc and 1099-nec, man holding tablet using calculator
filling out forms 1099-misc and 1099-nec, man holding tablet using calculator

Quick Cheat Sheet: Instructions for forms 1099-MISC and 1099-NEC 

Hiring independent contractors for your business can reduce paperwork and tax payments, but it does require using 1099 forms for reporting purposes. There are numerous 1099s to report different types of non-employment income to the IRS during the tax year. In this quick cheat sheet, we’ll break down the differences between Forms 1099-MISC and 1099-NEC and provide step-by-step instructions to streamline the filing process.

First things first… 

What is a 1099-MISC form?

The 1099-MISC (or Miscellaneous Information) form is used to report to the IRS certain types of miscellaneous compensation (exceeding $600) made to individuals or non-employees for services. These services include:

  • Rent payments
  • Prizes and awards
  • Cash paid from a notional principal contract to an individual, partnership, or estate
  • Payments to an attorney
  • Medical and healthcare payments 
  • Crop insurance proceeds
  • Cash payments for fish (or other aquatic life) purchased from anyone who makes a living catching fish
  • Any fishing boat proceeds
  • Other income payments

Other instances when 1099-MISC is used 

  • To report direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment
  • Any taxpayer paid $10 or more in royalties

What is a 1099-NEC form?

Form 1099-NEC (or Non-Employee Compensation) is designed for reporting nonemployee compensation, including payments to independent contractors. If your business pays an independent contractor over $600 for services rendered in a calendar year, issuing a 1099-NEC is mandatory. This form helps the IRS track an independent contractor’s total earnings.

Important to know: What’s the difference between employees and contractors?

Who requires a 1099-NEC?

  • Issued to: freelancers, independent contractors, sole proprietors, partnerships
  • Not issued to: corporations

The difference between 1099-MISC and 1099-NEC forms

Since 2020, nonemployee pay has been reported on Form 1099-NEC, which generally reports business payments—not personal ones. Before the 2020 tax year, Form 1099-MISC was also used to report nonemployee compensation for independent contractors, freelancers, sole proprietors, and self-employed individuals. Form 1099-MISC is for reporting payments like rent or prizes that are not subject to self-employment tax, whereas Form 1099-NEC is for reporting nonemployee compensation that is likely subject to self-employment tax.

  • 1099-MISC only: for reporting specific types of payments besides wages
  • 1099-NEC only: for reporting nonemployee compensation
  • Both forms: When paying an independent contractor over $600 and over $600 in rent

Note the different filing deadlines: 

1099-MISC: File with the IRS by March 1

1099-NEC: File with the IRS by January 31 

Best practices for filing Forms 1099-MISC or 1099-NEC

  • Before engaging in any business transaction, collect the contractor’s completed W-9 form. Doing so it not only your legal obligation; it’s an important part of staying up to date and prepared at 1099 time. We recommend collecting the W9 before issuing the first payment to any contractor.
  • Ensure that the W-9 form is filled out accurately, including the service provider’s name, address, and tax identification or Social Security number
  • As of January 1, 2024, any business filing 10 or more 1099s must file electronically
  • Adhere to deadlines. Penalties for late and failed filings can be significant.
  • Check individual state requirements for filing 1099 forms.
  • Keep accurate records, especially regarding recipients’ taxpayer identification or Social Security numbers.
  • Use online services to file electronically for a hassle-free process, ensuring compliance with federal and state requirements.

Your quick cheat sheet for Form 1099-MISC and Form 1099-NEC

Form 1099-MISCForm 1099-NEC
PurposeReport payments for miscellaneous income Report nonemployee compensation
Issued byBusinesses with certain miscellaneous expenses Businesses using contractors
Issued toProperty owners, prize winners, attorneys, etc.Freelancers, independent contractors, sole proprietors
Filing limit $10 for royalties or brokers, $600 for all others $600
Filing deadlineMarch 31January 31 

Need help with your business accounting? 

Dealing with tax forms can be a daunting task. If your business could benefit from tax or any other financial expertise, we’d love to hear from you!

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