If you're a business owner in the United States, you need to track all payments you make to independent contractors or non-employees and report them to the Internal Revenue Service (IRS) periodically. There are two important and most frequently used forms you'll submit to the IRS: 1099-MISC and 1099-NEC. Knowing when and how to use these forms plays a major role in helping you stay compliant during tax season. Here, learn what these forms are, who should file them, and the deadlines for each.

What is a 1099 form? 

1099 forms are a group of "information return" forms that are filed with the IRS when you pay your contractor or any non-employee. You will report income such as dividends, interests, non-employee compensation, and retirement plan distributions in your 1099s. Contractors depend on the 1099s you send them to track their self-employment income for the financial year.

It is your responsibility to file 1099 forms with the IRS and send a copy to the contractors. At times, you will have to send a copy of the forms to the state taxing authority, too. While the contractors don't directly file it, they retain these forms for audit purposes.

What are the different types of 1099 forms? 

The 1099 form you file depends on the type of income you want to report to the IRS. The most common ones that many businesses use are 1099-MISC and 1099-NEC. Other types include 1099-K, 1099-DIV, 1099-INT, 1099-G, and more.

1099-MISC: Definition, filing, and deadlines

Form 1099-MISC is used to report miscellaneous compensation to the IRS. As a business owner, you will file one 1099-MISC form for each person you have paid, even if you have made multiple payments to them.

You will file a 1099-MISC if you have:

• Sold $5,000 or more worth of goods to a reseller.

• Earned at least $10 in royalties or broker payments in lieu of dividends.

• Paid at least $600 in rent, prizes, awards, crop insurance proceeds, or payments to attorneys.

• Paid for medical and healthcare services.

• Distributed earnings from operating a fishing boat.

What is the deadline for 1099-MISC?

The deadline to send your 1099-MISC to the recipient is January 31, and you are required to file the same physically on paper with the IRS by February 28. If you choose to file it electronically, the last date is March 31.

How to fill out 1099-MISC

Box 1 - Rents:

Report payments made for rent, whether it’s for land, buildings, or other property.

Box 2 - Royalties:

Enter the total amount of royalties, before deducting any fees or commissions, paid to someone like an author or literary agent.

Box 3 - Other Income:

Record any other income of $600 or more that doesn’t belong in any other box on the form.

Box 4 - Federal Income Tax Withheld:

For people who have not given you their TIN, you must withhold a part of their payment when you report in Boxes 1, 2, 3, 5, 6, 8, 9, and 10, and submit the form to the IRS.

Box 5 - Fishing Boat Proceeds:

Record crew members' earnings from selling a catch or the fair market value of a distribution for boats with fewer than 10 crew members.

Box 6 - Medical and Health Care Payments:

Report payments of $600 or more made to healthcare providers for medical services.

Box 7 - Direct Sales by Payer Totaling $5,000 or More:

Mark an "X" in this box if you sold products worth $5,000 or more to someone for resale and you need not enter any number. You can either report these on Form 1099-MISC or Form 1099-NEC.

Box 8 - Substitute Payments Instead of Dividends or Interest:

If you are a broker and received at least $10 instead of dividends or tax-exempt interest for the customer’s loaned securities, you need to enter that amount here.

Box 9 - Crop Insurance Proceeds:

If you are an insurance company, fill in crop insurance proceeds of $600 or more that you paid to farmers unless the expenses have been capitalized under section 278, 263A, or 447.

Box 10 - Gross Proceeds Paid to an Attorney:

You can report any payments you made to an attorney regardless of whether you used their service. You can refer to the IRS's website regarding payments made to attorneys for more details.

1099-NEC: Definition, filing, and deadlines 

Form 1099-NEC is used to report non-employee payment made to contractors. This was earlier included in the 1099-MISC and later moved to 1099-NEC in the year 2020. You must submit a 1099-NEC to both the IRS and the contractor if you've made payment of $600 or more as fees, commission, or awards in a year.

Here are other reasons why you should file a 1099-NEC:

• You paid your non-employee.

• You paid for services during your business.

• You paid an individual, partnership, or a corporation.

• You made at least $600 of payments to your non-employee.

Examples:

• You paid your attorney.

• A travel reimbursement was paid to your non-employee.

• Oil and gas payments that you made as a working interest.

• You are a federal executive agency and paid a corporation or any vendor for their services.

You can also refer to the instructions provided by the IRS here.

There are instances when you will not submit a 1099 form:

• If you paid for goods and not services.

• If the business you paid is a C or S Corporation.

The deadline to file 1099-NEC with the IRS and the recipient is January 31; if the deadline falls on a weekend or a holiday, you can file it on the next business day. You will send 1099-NEC Copy A to the IRS, and you will send Copy B and Copy 2 to the recipient. You will also send another copy, called Copy 1, to the state tax departments.

How to fill out a 1099-NEC form

Box – 1 Non-employee compensation:

• Enter all the non-employee compensation you paid.

• Enter any payments you made for services during your trade.

• Enter any payments you made to an individual, partnership, estate, or corporation.

• Enter any fees paid to attorneys and any fees paid by one professional to another.

• Enter any payments made to non-employee entertainers for services.

Box – 2 Direct sales totaling $5,000 or more:

Mark an "X" in this box if you sold goods worth $5,000 or more. This instruction applies if you sold the products to a reseller, if you made commissions for the products you sold, or if you sold the products in other ways that gave you commissions.

You can report this in Box 2 of the NEC or in Box 7 of the MISC. In case you choose to enter this data in the 1099-NEC, your deadline to file the report is January 31. Do not file two forms or enter a number in the box for this.

Box 4 – Federal income tax withheld:

Enter the federal income tax details you withheld for people who have not given you their TINs.

Boxes 5 to 7 – State information:

Use Box 5 to enter payment details for up to two states and use the dash line to differentiate those details. Use Box 6 to enter the abbreviated name of the state and the payer's state identification number. Use Box 7 to add the payment amount.

If you are asked to send a paper copy to the state tax department, use Copy 1 and give Copy 2 to the recipient.

What should you know about e-filing of 1099s? 

If you are filing 10 or more returns, then e-filing is required and you must also have a Transmitter Control Code (TCC). It will take you around 45 days to get this TCC that helps identify your firm when you e-file your 1099s. The TCC is unique to your firm or company and is a five-character code.

There are two ways to e-file your 1099s. You can e-file through the IRIS taxpayer portal or use a software application.

If you choose to e-file through the IRIS taxpayer portal, then you can file up to 100 returns at a time, upload forms in .csv format manually, download payee copies, keep a record of your filed, distributed and completed forms, and manage details about the issuer. You can check refer this e-file information returns with IRIS for more details. 

 Penalties for not filing MISC or NEC 

The IRS charges penalties for every information return you fail to provide, and for the payee statements you don't deliver. It also charges interest on the penalties. The penalty type and amount are based on the filing date.

How to deal with an error in your 1099 forms 

First identify the error type, then notify the contractor of the error and file a corrected form. It is highly important that you stay aware of the deadlines before you initiate this process. For more intricate details on this process, you can also refer to this document.

 A word from us 

Filing your 1099 forms correctly and on time is crucial to meet the IRS's rules and avoid fines. Knowing when and how to use Forms 1099-MISC and 1099-NEC, and quickly fixing any mistakes, helps you keep your tax reporting on track and your business reputation intact.