For the 2021 tax year, the IRS will continue to use the relatively new information return – Form 1099-NEC – and enforce its filing requirement. Traditionally, businesses have used one form – Form 1099-MISC – to report payments made to nonemployees. Now, you may need to use both forms and follow their unique specifications.
What’s Form 1099-NEC?
If you’re involved in a trade or business, you must file Form 1099-NEC to report any nonemployee compensation of $600 or more. Nonemployee compensation includes fees, commissions, prizes, awards, and any other forms of compensation for services performed by someone who isn’t classified as your employee. It also includes oil and gas payments for a working interest and expenses incurred for using an entertainment facility that you treat as compensation.
Common examples of nonemployees are independent contractors or attorneys you pay for legal services.
Generally, you’re required to file a Form 1099-NEC if you meet the following conditions:
- You paid someone who’s not your employee
- You paid for services in the course of your trade or business
- You paid an individual, partnership, estate, or corporation (in some cases)
- You paid at least $600 to the payee during the year
You’ll have to complete one Form 1099-NEC for each payee you pay in excess of $600 and send each payee a statement.
What’s Form 1099-MISC?
Form 1099-MISC reports the miscellaneous income you paid to individuals in 2021. Miscellaneous income includes:
- At least $10 in royalties or broker payments
- At least $600 in
- Rent
- Prizes and awards
- Other income payments
- Cash paid from a notional principal contract to an individual, partnership, or estate
- Any fishing boat proceeds
- Medical and health care payments
- Crop insurance proceeds
- Payments to an attorney (in connection with legal services, but not for the attorney’s services, i.e., a settlement agreement)
- Nonqualified compensation
If you have to file a Form 1099-MISC, you must also send the recipient a statement. Visit the IRS’s website for more Form 1099-MISC requirements.
Do I have to file a 1099 form?
If you made any of the payments listed above in the course of your trade or business, yes. If you’re self-employed or own a business, you’ll likely have to file some type of Form 1099. If you’ve kept all payments under $600, you don’t have to file a 1099 form.
Businesses and self-employed individuals aren’t the only ones who have to file 1099 forms. The following entities are also required to file 1099s:
- Nonprofits
- Trusts of qualified pension or profit-sharing plans of employers
- Certain organizations that are exempt from tax under section 501(c)
- Farmers’ cooperatives that are exempt from tax under section 521
- Widely-held fixed investment trusts
- Federal, state, and local government agencies
Remember, you don’t have to report any personal payments. And, you aren’t required to file a 1099 form if:
- You’re not engaged in a trade or business.
- You’re engaged in a trade or business, and you paid another business that’s incorporated, but the payment wasn’t for medical or legal services.
- You’re engaged in a trade or business, and the sum of all payments made to the person or unincorporated business is less than $600 in one tax year.
Keep in mind; you must use the appropriate form for each payment type. If you paid the same payee for different reasons – say nonemployee compensation and rent – you need to file a Form 1099-NEC for the compensation and Form 1099-MISC for the rent.
When are 1099 forms due?
For the 2021 tax year, Form 1099-NEC is due to both the IRS and recipients on Jan. 31, 2022.
Form 1099-MISC is due Feb. 28, 2022, if you file on paper, or March 31, 2022, if filing electronically. Statements to recipients are due on Jan. 31, 2022.
There are no filing extensions for either form.
Why do I have to file 1099 forms?
The IRS uses 1099 forms to ensure recipients are properly reporting their payments on their tax returns. It’s important that you complete the forms accurately and report each payment in the proper box.
Make sure you’re paying attention to what type of payments you made, how much you paid to each payee, and report the payments on the appropriate form(s). Reach out to your tax professional if you have any questions.
Originally published 11/11/2020. Updated 11/22/2021.
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