1099 NEC – What is it, and why is the 1099Misc Dead?

[youtube https://www.youtube.com/watch?v=UUiQw_nynjE] What is the Difference Between Form 1099-MISC and Form 1099-NEC? In Part 2 of this six-part series, we discuss the important differences between Form 1099-MISC and Form 1099-NEC which made its return in the 2020 tax year after a 38-year absence. Form 1099-MISC, meaning Miscellaneous Income, is an information return that businesses use to report payment types, such as payments made to independent contractors. You can also use Form 1099-MISC to report other payments, like royalties and rents. It is similar to a Form W-2, but specifically for independent contractors. Form 1099-NEC, meaning Nonemployee Compensation, is not a replacement for Form 1099-MISC. It is only used in place of Form 1099-MISC for reporting independent contractor payments starting in 2020. Form 1099-NEC was brought back after 38 years to separate nonemployee expenses and clear up confusion for both the taxpayer and the IRS. Nonemployee compensation uses the following payment types to independent contractors: ●  Fees ●  Commissions ●  Prizes ●  Awards ●  Other forms of compensation for services Make sure to separate 1099-NEC payments from other 1099-MISC payments, and only make a submission if you have paid the worker $600 or more in nonemployee compensation. Like Form 1099-MISC, there are multiple copies of Form 1099-NEC which you must distribute. Send these five copies to: ●  Copy A: The IRS ●  Copy A1: State tax department, if applicable ●  Copy B: Independent contractor ●  Copy B2: Independent contractor ●  Copy C: Keep in your business records When you hire an independent contractor, they will fill out a Form W-9 (employees fill out Form W-4). The employer will use the information on Form W-9 to report nonemployee compensation at the end of the year.  When filling out Form 1099-NEC, include the following information: ●  Business’s name, address, and phone number ●  Business’s TIN (Taxpayer Identification Number) ●  Recipient’s name, address, and TIN ●  Total nonemployee compensation ●  Federal and state income tax withheld  Keep in mind the new due date for Form 1099-NEC. Starting in 2021, the employer should send copies to the IRS, as well as to workers they have paid nonemployee compensation to, by February 1. Form 1099-MISC, on the other hand, is due on February 28.