Beginning in 2020, the 1099-NEC was reintroduced. Since its departure in 1982, the 1099-NEC was initially utilized to account for miscellaneous income, which is now the main purpose of Form 1099-MISC. Form 1099-NEC now solely accounts for self-employment income.
That wasn’t the only change the IRS introduced to self-employed individuals since the rise of the gig economy. 2021 and 2022 have seen major changes in how freelancers report their income.
Why Was the 1099-NEC Reintroduced?
The IRS reintroduced the fillable 1099-NEC form to simplify the reporting of contracted work. Before 2020, only 12.9 million Americans considered themselves independent contractors or freelancers, but that rate doubled in 2021 to 23.9 million due to the rise of remote work.
What’s more, full-time and part-time independent workers became more prevalent. In 2020, there were 13.6 million full-time and 38.2 million part-time independent contractors. In 2021, that number shot up to 17 million for full-time and 51.1 million for part-time.
What Changes Were Made to the 1099-MISC and 1099-NEC?
Create and file your 1099 forms online. The 1099-NEC has a January 31st deadline for employers and payers, whereas the 1099-MISC has a paper filing date of March 1st and an electronic filing date of March 1st. Other changes for the 2021 tax year include:
Form 1099-MISC:
- The previous name of Miscellaneous Income has now been changed to the more specific title of Miscellaneous Information. Though the change may seem small, it reflects our commitment to providing more in-depth and well-rounded data.
- Box 11 must include reporting under section 6050R. This section includes cash payments for fish from individuals or corporations that catch fish as long as they’re purchased for resale purposes.
Form 1099-NEC:
- Form 1099-NEC was resized to reduce its height.
- Providing a 1099-NEC or 1099-MISC is not mandatory unless you pay out $5000 from retail sales, deposit commissions, and buy/sell.
- Box 1 was removed from the 1099-NEC and placed on the 1099-MISC.
Although the IRS would have accepted self-employment income on the 1099-MISC in 2020, they will only accept Form 1099-NEC from 2021 forward. The IRS also waived the taxpayers’ need to file certain CARES Act subsidized loans and its interest on the 1099-MISC.
Who Should File the 1099-MISC and 1099-NEC?
Freelancers and independent contractors who are paid via invoices or by clients will need to use 1099-NEC to report their income. You’re considered an independent contractor or freelancer if you do not have an employer who pays your half of FICA tax/self-employment taxes.
You may also need to use the 1099-MISC, but only if you have income that isn’t counted as employment or self-employment income. For example, reported rent, royalties, gambling winnings, interest, attorney payments, and medical costs are reported on Form 1099-MISC.
You should report your self-employment income, even if you make less than $600 per year, but you won’t be taxed. All miscellaneous income on the 1099-MISC should be reported.
How Should You File the 1099-MISC and 1099-NEC?
The 1099-NEC and 1099-MISC are sent to the IRS by your employer or payer. Independent contractors should receive their 1099-NEC forms by February and the 1099-MISC forms by early March or April. If you don’t file quarterly, you need to file your tax return by April 16th.
If you’re an independent contractor, the details of your income and payments must be meticulously documented and reported. Using a reliable pay stub creator can help simplify the creation of accurate pay stubs that complement the necessary tax forms, like the 1099-NEC, ensuring that you keep precise records for tax purposes.
If you’re experiencing a delay in filing Form 1099-NEC, apply for an extension with Form 8809. Otherwise, you may be liable for a penalty that could range from $50 to $260.
To fill out Form 1099-NEC, you’ll need your Employer Identification Number (EIN), your company’s name, and address, if applicable. If you’re a contractor looking to start work, please provide your SSN. Fill out Box 1, 4, 5, 6, and 7 with your previous and current tax year information.
To fill out Form 1099-MISC, input your business or independent contractor information in the space provided. In this part, please provide your total income from the last year. This includes all the money you earned, including but not limited to rents, dividend payments and healthcare expenditure etc. Fill in the box 4 for federal income tax withheld.
