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1099-NEC vs. 1099-Misc.

Determining which form to use can be tricky. Here are the basics.

The 1099-NEC. Used to report payments of $600 or more to non-employees (e.g., ICs and freelancers) (formerly reported on a 1099-MISC, Box 7).

Important. Copies A and B of the 1099-NEC are due to the IRS and to recipients by Feb. 1, whether on paper or electronically.

Carefully identify the IC’s business form. Just because an IC’s business card says “company” does not mean the IC is a corporation. For example, say that a limo driver who has a full-time job at ABC Inc. makes runs for your firm in his free time as a sole proprietor. His business card may say ABC Inc., but if he works for your company as a sole proprietor, send a 1099-NEC.

Safety first. Request a W-9 any time you are unsure of an ICs business form. When in doubt about whether to send any kind of 1099, send it—better safe than sorry.

The 1099-MISC. Used to report a variety of miscellaneous distributions to individuals, including payments for rent, prizes, and awards.

You must file a 1099-MISC for any nonemployee to whom your firm paid at least $600 during the year in:

· rent

· prizes and awards (e.g., to a customer who won your company’s raffle or won a prize at your firm’s grand opening) or trips (e.g., to honor a retiree)

· other income payments

· medical and health care payments

· payments to an attorney for legal services (reported in Box 14)

· dividends of $10 or more for the year

Paper Copy A of the1099-MISC is due to the IRS by Feb. 28; electronic copy by Mar. 31.

Copy B, electronic or paper, is due to recipients by Feb. 1—if $600 or more paid to attorneys, by Feb. 15.

1099s must be timely—and correct—to avoid penalties. Start soon to avoid filing the wrong form or filing the right form with errors.

Penalties may be incurred for:  

· failing to file timely

· failing to include all required information

· including incorrect information  

· filing on paper when electronic filing is required (based on number of forms filed)

· failing to include a TIN

· including an incorrect TIN 

· filing paper forms that are not machine-readable.

{AIPB, The General Ledger, November 2021; Vol 38, No.11}


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