There are many different versions of Form 1099, 1099 reporting requirements aren’t always clear, and the IRS recently changed the requirements for filing 1099-MISC, which is the most popular version for businesses that pay freelancers. So which 1099 do you need to file, and how do you do it properly?
What are the 1099 form types and requirements?
There are more than a dozen different kinds of 1099s, which are information returns used to report a different kind of income. Popular versions of the form include:
- Form 1099-K, which you must file if you accept more than 200 third-party network transactions totaling at least $20,000, i.e., transactions that were processed by third-party credit card processors like Stripe and Square. Note that this $20,000 threshold was to be lowered to $600 in 2023, but the change has been delayed by the IRS. Read more about the delayed implementation here.
- Form 1099-G, which you must file if you received unemployment compensation or other similar benefits.
- Form 1099-R, which you must file if you received a distribution from a retirement plan.
- Form 1099-DIV, which you must file if you received more than $10 in dividends or other distributions.
- Form 1099-B, which is specific to brokerages and mutual fund companies.
- Form 1099-INT, which is specific to the financial services industry.
By far, the most relevant 1099s to small business owners and independent contractors are Forms 1099-MISC, ‘Miscellaneous Income,’ and 1099-NEC, ‘Nonemployee Compensation.’
These are forms that businesses use to report whenever they’ve paid a non-employee (like a contractor or a temporary worker) more than $600 over the course of the financial year.
What’s the difference between 1099-MISC and 1099-NEC?
The difference between these two forms comes down to who received the 1099 income and what that income ended up paying for. Basically, you file:
- 1099-NEC any time you compensate a non-employee $600 or more to perform work for you in one calendar year. (Instructions)
- 1099-MISC any time you pay someone $600 or more in one calendar year for rent, prizes, awards, and any other types of income that might not necessarily qualify as compensation. (Instructions)
The IRS recently reintroduced Form 1099-NEC, so don’t worry if you received one this year expecting to have received a 1099-MISC instead.
Why am I getting an NEC instead of a MISC this year?
The IRS reintroduced Form 1099-NEC this year because of the confusion generated by the previous version of 1099-MISC.
It used to be that businesses had to file 1099-MISC for self-employed people they did business with by January 31st. But then there was a separate deadline for “other payees” in February as well.
Under the new system, 1099-NEC is for self-employed payees, while 1099-MISC is for all other payees.
How does filing a 1099-NEC and a 1099-MISC work?
If you look closely at both forms, you’ll notice that they each come with two copies: Copy A and Copy B.
These forms both work in the same way: as a payer, you report what you paid the payee on Copy A of each form and submit that to the IRS. Copy B then gets filled out the same way and sent to the contractor for their own recordkeeping.
If you’re a payee and you receive a Copy B from a client, you don’t need to send it to the IRS: you just report that income on your income tax return instead.
Keep in mind that you’ll need to have the following information on hand for each payee before you complete 1099-NEC or MISC:
- The total payment sent
- Their name and address
- Their taxpayer identification number (TIN)
To get their taxpayer identification number, you’ll need to have each payee fill out a Form W-9—ideally, you should have one of these on file for each of your payees. In fact, having your payee fill out a W-9 for you should be one of the first things you do before retaining their services.
Helpful resource: What is a W-9 Form and Why You Need to Fill It Out
1. Send Copy A to the IRS
Copy A must be submitted to the IRS by January 31, regardless of whether you’re filing online or by mail.
You can e-file through the IRS Filing a Return Electronically (FIRE) system, although you might have to fill out the IR application for TCC before doing so. (Remember to give yourself plenty of leeway if you do, in case something goes wrong during the filing process.)
2. Submit Copy B to the payee
Once your Form 1099-MISC or 1099-NEC is complete, send Copy B to all of your payees no later than January 31.
You can email Copy B to the payee, but you’ll need to get their permission before you do.
(Keep in mind that some services like Gusto can make this less labor-intensive by automatically requesting electronic filing consent from all of your contractors.)
3. Submit Form 1096 (if filing by mail)
If you file a paper copy of 1099-MISC or 1099-NEC, Copy A to the IRS, you’ll need to file Form 1096 as well, which is a form that the IRS uses to track all the physical 1099s you’re filing for the tax year. (The deadline for 1096 is also January 31.)
Helpful resource: Complete List of Small Business Tax Deadlines
When are you not required to file a 1099?
You don’t reach the $600 threshold
If you paid a payee less than $600 over the course of the financial year, you don’t need to submit Form 1099-MISC for them.
(Keep in mind that you still need to report all your income if you’re a payee, even if you did less than $600 of work for a client and never received a 1099.)
The payee is a corporation
Sometimes a payee will be registered as a C corporation or S corporation, in which case you don’t need to file Form 1099. (You can check whether a payee is incorporated based on the information on their Form W-9.)
The payee is an employee
The IRS is often on the lookout for business owners who misclassify workers—that is, businesses who hire employees and then claim they’re independent contractors or non-employees. Make sure you know the difference before you submit a 1099.
What happens if you miss the deadline?
You’ll have to pay the following IRS penalties for each late 1099 form:
- $50 if you file within 30 days
- $110 if you file more than 30 days late, but before August 1
- $290 if you file on or after August 1
That’s only if you accidentally fail to file, though.
If you intentionally fail to file, the minimum penalty is $530 per statement, which can increase depending on when you file the correct form. (Remember also that you can request an extension using IRS Form 8809.)
If you’re a contractor, it’s your client’s responsibility to send you a completed copy of Form 1099 by January 31. If you haven’t received Copy B of a 1099 from your client by the deadline, make sure you follow up with them about it.
