Form 1099: the Latest Changes

Form 1099: the Latest Changes

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The 1099-MISC and 1099-NEC forms are used by businesses and individuals to report income received from non-employment sources, such as freelance work or rent. In recent years, the IRS has made significant changes to these forms, including introducing the 1099-NEC form.

The 1099-MISC form has long been used to report non-employment income, including income from rent, royalties, and freelance work. However, in 2020, the IRS introduced a new form, the 1099-NEC, specifically for reporting non-employment compensation. This change was made to more clearly distinguish between non-employment income and employment income, written on the W-2 form.

The 1099-NEC form must be used to report non-employment compensation of $600 or more, while the 1099-MISC form is still used to report other types of non-employment income, such as rent and royalties. Businesses and individuals who previously used the 1099-MISC form to report non-employment compensation will now need to use the 1099-NEC form instead.

The filing process for these forms has also changed:

  • The deadline for providing forms to recipients and filing them with the IRS is now January 31st, a month earlier than the previous deadline of February 28th.
  • Businesses and individuals must gather the necessary information and complete the forms earlier in the year.
  • In addition to these changes, the IRS has also increased penalties for failing to file accurate forms or on time. These penalties can be substantial, so businesses and individuals must understand and comply with the new rules.

For example, if a business paid $10,000 in non-employment compensation to an individual, it must file a 1099-NEC form with the IRS and provide a copy to the individual by January 31st. If the business fails to do so, it may be subject to penalties from the IRS.

Overall, the introduction of the 1099-NEC form and changes to the filing process represent significant changes for businesses and individuals who report non-employment income. They must understand these changes and comply with the new rules to avoid penalties.