1099-NEC or 1099-MISC? What’s Changed – and Why It Matters

In a move that will impact business owners and tax professionals across the nation, the IRS has released the 2020 Form 1099-NEC. The new form replaces Form 1099-MISC for reporting non employee compensation (in Box 7), shifting the role of the 1099-MISC for reporting all other types of compensation. Because of this, the overall process for reporting nonemployee compensation is changing for the 2020 tax year.

The new 1099-NEC (NEC stands for Non-Employee Compensation) is based on an old form that has been out of use since 1982. To use the “reinstated” 1099-NEC properly, you need to understand what is considered nonemployee compensation. Previously reported on Box 7 of the 1099-MISC, the new 1099-NEC will capture any payments to nonemployee service providers, such as independent contractors, freelancers, vendors, consultants, and other self-employed individuals.

The 1099-MISC will still capture any payments for miscellaneous income, such as rents, royalties, and medical and health care payments.