Many self-employed or freelance workers expect to receive 1099 forms, but few realize that if they were hired to do work and paid more than $600, then they need to send a 1099 form. It is a bit more complicated than just downloading a form and mailing it.

In addition to sending out a 1099 form by January 31, a copy must be sent to the IRS by February 28, while the electronic filing deadline is March 31.

The IRS will impose a penalty/fine for the failure to file an accurate 1099-MISC form on time and the minimum penalty is a fine of $30 for each return if a person files the correct information within thirty days of the filing date, which is Feb. 28.

There are also two versions of the 1099 form now. One is the 1099-MISC form and the other is the 1099-NEC form. They are similar but used for different types of income.

What is the 1099-MISC?

A full-time employee who doesn't do any work on the side wouldn’t likely see a 1099 form. Instead, they receive a W-2 form, which is typically sent by an employer to report all wage and salary information for employees.

First, there is 1099-MISC, which is sent to each person to whom an employer may have paid during the year including those who made at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.

It is also sent for those who made at least $600 in rents, prizes and awards, other income payments, health and medical care payments, crop insurance proceeds and even for cash payments for fish (or other aquatic life) that an individual may purchase from those engaged in the trade or business of catching fish. A 1099-MISC form can also be sent for cash paid to a notional principal contract to an individual partnership, or estate.

The 1099-MISC form is also used to report any direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment.

1099-NEC

To further complicate matters, beginning with Tax Year 2020, there is the 1099-NEC form, or Nonemployee Compensation, which is used to report payments of nonemployee compensation (NEC) previously reported in box 7 on Form 1099-MISC.

It is the form business owners will use to report nonemployee compensation. This form is only used to report non-employee compensation to independent contractors, and not other types of payment.

In other words, Form 1099-NEC did not replace Form 1099-MISC. It just took over the nonemployee compensation portion of 1099-MISC. It is used for each person paid who is not an employee; if the payment was for services in the course of a trade or business; or if a person made a payment to an individual, a partnership, an estate, or a corporation; and payments to the payee was at least $600 during the year.

Peter Suciu is a Michigan-based writer who has contributed to more than four dozen magazines, newspapers and websites. He regularly writes about military small arms, and is the author of several books on military headgear including A Gallery of Military Headdress, which is available on Amazon.com.

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