Skip to main content

1099-NEC vs 1099-MISC- When should they be used?

In 2020 the IRS changed the types and format of Form 1099. Before 2020, non-employee compensation was reported on box 7 of Form 1099 Misc. When the change took effect, box 7 was changed to a single question and non-employee compensation received its own 1099. In this post, we will explain the different situations in which each 1099 may be used. It will not be a complete list, but it will give some context to the usage of the different forms.  


Form 1099-NEC is used when reporting payments made to a freelance or contract worker who is not an employee of the company. Form 1099 does not need to be filed for every contractor, only the ones that were paid $600 or more during the year. Form 1099 also is not needed if the contractor is arranged as a corporation. Since the person is not an employee, the organization does not withhold any taxes from their pay. The form should be filed with the IRS and sent to the individual by January 31st. 

To fill out the form the organization should have a copy of the contractor's W-9, it is a good practice to acquire a W-9 as soon as the contractor is hired. From there all that needs to be entered on the 1099 is the contractor's name, address, social security number (or EIN), and the amount paid to the individual. If for some reason tax was withheld, which would not be normal, then it would also be reported on the 1099.


Form 1099-MISC is used for a larger variety of situations than 1099-NEC. Form 1099-MISC must be filed and sent to any entity that was paid $600 or more by January 31st of the following year. Some of the common situations that would require a 1099-MISC are rent, royalties, prizes and awards, other income payments, medical and health care payments, crop insurance proceeds, payments to an attorney, and other unusual circumstances. 

To fill out the form the organization will need to acquire a Form W-9 from the entity or have them provide their EIN/SSN, address, and full name. This information must be reported on the respective boxes on the 1099, reporting the income in the appropriate box. After that, file the form and send a copy to the individual or business. It is an easy process as long as the necessary information has been collected. The best practice is to collect the information throughout the year so that at year-end all that needs to be done is determine which individuals/entities received more than $600. 


Popular posts from this blog

Rental of a Church Parsonage to a Non-Minister

Question: A church owns a parsonage, but the pastor does not use it as he owns his own home. The church rents the parsonage to a tenant other than a minister or employee of the church. Will the church be responsible for paying income tax on these monies as Unrelated Business Income (filing a Form 990-T) even if the money is used to carry on the business of the church? Answer: Whether the money is used for church purposes is irrelevant.  IRS Publication 598  states: "If an exempt organization regularly carries on a trade or business not substantially related to its exempt purpose, except that it provides funds to carry out that purpose, the organization is subject to tax on its income from that unrelated trade or business." Fortunately, in the case of rental income from real property, such income is "excluded in computing unrelated business taxable income" (Publication 598). Caution: see content below regarding debt-financed property.  However, a second concern not a

Form 944 or 941 Filing for Churches

Question:   A new church filed for an employer identification number (EIN) recently. It received notification from the IRS about the EIN, stating that the church must file Form 944 by the following January deadline. The church has no non-ministerial staff members. Since income tax withholding is elective by ministers and none of the pastors has elected to request non-mandatory withholding is the church required to file Form 944 annually? Also, a quarterly Form 941 (rather than an annual Form 944) is required of some employers. Which IRS form, if any, should be filed? Answer: According to IRS Section 1402(c) and 3121(c), ministers are not subject to mandatory income tax withholding. Unless one or more ministerial employees request non-mandatory withholding, church employers with only ministerial employees do not need to file Form 941 or Form 944.  The IRS  Ministers Audit Technique Guide  explains in further detail a minister's treatments for social security, Medicare tax, Fed

Review: Form 1099 Payments to 501(c)(3) Organizations

Question: A church rented space from another church last year. Should it request a completed Form W-9 and issue Form 1099-MISC? Answer: Payments from one 501(c)(3) organization to another 501(c)(3) organization are not subject to Form 1099-MISC reporting. The IRS Instructions for Form 1099-MISC state that "payments to a tax-exempt organization" are exempt from reporting a Form 1099-MISC.  The following are typical examples of payments of $600 or more by a church which are subject to reporting a Form 1099-MISC: Rent paid to an individual (non-corporation) Payments for services rendered by individuals who are not employees (e.g. janitorial service, facilities, snow removal, guest speakers) Support sent directly to missionaries