The 1099-NEC Form Online is back. Here’s why it’s replacing 1099-MISC Form Online for reporting non-employee payments, and how to file one for the upcoming tax season.
Lots of things are making a comeback these days. Like Space Jam and monster equipment. And moreover… tax forms?
Form 1099-NEC Online was retired back in 1982, but the IRS has start again it with a fresh new look for taxpayers with freelancer income. This form replaces 1099-MISC forms for reporting payments to non-employees. Whether you’re a self-governing freelancer or an employer who hired one, grab your circa-1980s Top Gun aviators and read on for what’s new.
What was IRS Form 1099-MISC used for?
The “MISC” in 1099-MISC stands for miscellaneous income, so it’s used as a place to file many payments such as rent, attorney, Medicare, and healthcare payments greater than $600. One of the uses of this form was to report non-employee payment, that is, any type of paid work that wasn’t performed by an employee.
Nonemployee compensation was Filing under Box 7 of the 1099-MISC. Clients were required to issue one to all of their payees who received $600 or more in a calendar year.
Why did the IRS decide to replace Form 1099-MISC for nonemployee compensation?
Form 1099-MISC ran into issues with due dates. Form 1099-MISC had two due dates – 28th February if filing by mail and March 31st if filing online.
Though, these dates weren’t allied with another important form, the Form W-2 Online (used to file employee compensation), which had a filing deadline at the end of January. This wide, two-month gap meant that the employee compensation was reported, filled, and taxed on a different schedule than nonemployee compensation. This caused a lot of confusion for filers and also left room for manipulation.
This was specially the case with fake credit claims for the Earned Income Tax Credit (EIRC). So in 2015, the IRS took the first steps in revising the system, with the Protecting Americans from Tax Hikes Act (PATH Act). They moved the reporting deadline for just Box 7 to January, but that meant that the taxpayers had to report the same Form twice with different deadlines.
In the end, the greatest result was too isolated out 1099-MISC by re-introducing a new Form 1099-NEC Online 2021.
1099-NEC vs. 1099-MISC: What are the differences?
As of 2020, Form 1099-NEC completely replaces Box 7 on Form 1099-MISC for reporting non-employee compensation.
Box 7 in the Form 1099-MISC Online will now be used to report direct sales of $5500 or more.
If you want to get into the basics details, we have a separate article on the differences between Form 1099-MISC and Form 1099-NEC.
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