Forms 1099 are information returns that report pretty much all kinds of payments and transactions that are taxable. There are different variants of this form, reporting a wide range of payments. The Internal Revenue Service requires payers to file and furnish a copy of this tax form to whom they’ve made payments so that the recipient can report income when filing a federal income tax return.
Form 1099-NEC and Form 1099-MISC are one of the two most common 1099s used for reporting payments made to freelancers and independent contractors. While the use of Form 1099-NEC is for a singular purpose, and that is to report nonemployee compensation whereas Form 1099-MISC is used for many other types of payments. The difference between these two tax forms is just that. Form 1099-MISC can also be used for reporting nonemployee compensation, but also used for reporting the following types of payments.
- Any fishing boat proceeds.
- Cash payments you purchase from anyone engaged in the trade or business of catching fish.
- Cash paid from a notional principal contract to an individual, partnership, or estate.
- Crop insurance proceeds.
- Medical and health care payments.
- Other income payments.
- Payments to an attorney.
- Prizes and awards.
The “other income payments” on Form 1099-MISC make it an information return that can be used for very different types of transactions. Because most businesses file Form 1099-MISC for payments made other than nonemployee compensation, and the IRS requiring them to file with the agency, most prefer to file 1099-MISC rather than 1099-NEC. For every type of 1099 you file, you must file Form 1096 and submit them to the IRS, summarizing the total amount paid. Since filing Form 1099-NEC would add up to the paperwork, it’s better to just file Form 1099-MISC.
However, if you only pay nonemployee compensation to freelancers and independent contractors but don’t file Form 1099-MISC, filing 1099-NEC becomes more viable. This is due to the information required on the form. Form 1099-NEC is such a simple tax form that doesn’t require any knowledge or even instructions to file. Make sure to file Form 1096 for each type of 1099s you file. Learn more about how to report annual summary and transmittal of the information returns, including not only 1099s but 1098s, 5498s, 3921, and 3922.