The 1099 NEC is used for payments made to independent contractors, while the 1099-MISC covers other expenses like rent, royalties, and prizes.
Keep reading to learn when to use each form and how they affect taxes.
What is the 1099 NEC?
The 1099 NEC is a form used to report payments made to independent contractors and anyone who works for a business but isn’t considered an employee. So, if you’re a contractor and earned $600 or more from a company over the year, you’ll most likely get this form.
The “NEC” stands for “Non-Employee Compensation.”
This means it’s used to pay people not on the company’s regular payroll. An example is when a company hires a graphic designer or a writer and pays them $600 or more.
They’ll send a 1099-NEC to report those payments.
What is the 1099 MISC?
The 1099 MISC is another form used to report payments, but it covers a broader range of situations than the 1099 NEC.
While the 1099 NEC is about paying contractors, the 1099 MISC is for other types of income. For example, let’s say a company pays you to use your property or gives you a prize for winning a contest—they would report that payment on a 1099 MISC.
It’s also used to pay for legal or medical services, even if the person isn’t a full-time employee.
Now, just like with the 1099 NEC, you’ll need to report the income from the 1099 MISC on your taxes.
Key Differences Between the 1099 NEC and 1099 MISC
Let’s break down the main differences between these two forms to help you understand when to use each one.
1. Different Payment Categories
As we discussed earlier, one of the biggest differences is the type of payment each form covers. This is what sets them apart in the simplest way.
The 1099 NEC is all about non-employee compensation. Basically, if you’re an independent contractor or freelancer, this is your form.
On the other hand, the 1099 MISC covers everything from rent to royalties, prizes, awards, and even legal fees. If you’re paid for something that isn’t directly related to providing a service, the 1099 MISC is probably your form.
It’s a catch-all for rent income, royalty payments, and fees that fall outside the scope of regular employee compensation.
2. Impact of Changes in 2020
In the past, everything was reported on the 1099 MISC. However, starting in 2020, the IRS made a major change by bringing back the 1099 NEC for non-employee compensation.
Before this, contractors would’ve gotten the 1099 MISC for their work, too.
This shift helps simplify the reporting process by allowing businesses to separate contractor payments from other types of income. The 1099 MISC still exists, but its scope has been limited, while the 1099 NEC focuses exclusively on those who provide services but aren’t classified as employees.
3. Reporting Different Types of Deductions
When you receive a 1099 NEC, there are no tax withholdings.
That is, the business isn’t going to take any taxes out of the money they pay you. It’s up to you to handle your taxes. You’ll need to report this income and determine how much you owe.
But with the 1099 MISC, you might have tax withholding if there’s a situation like backup withholding. If there’s an issue with your taxpayer ID number or a previous underreporting of income, the payer might be required to withhold federal taxes.
This form also reports other payments that could involve taxes being withheld, like legal fees or medical costs.
In short, the 1099 NEC means no tax withholding, but with the 1099 MISC, taxes might be withheld under certain circumstances.
4. State-Specific Differences
While both forms are used for federal tax purposes, state taxes can sometimes differ.
Some states have additional rules for reporting payments. They may require more detailed filings or extra forms for non-employee compensation or certain MISC payments.
For example, if you’re receiving royalties or rent payments, you might have to file extra paperwork on the state level to account for the income.
So even if the 1099 NEC and 1099 MISC are pretty straightforward federally, you might still need to check with your state’s tax office. This ensures you’re following the correct reporting rules.
Related: Why Might Preparing Taxes Be Different for People Living in Different States?
5. Form Design and Layout
Another key difference is the design of the forms themselves.
The 1099 NEC only has a few key boxes where the payer reports how much they paid you. It’s easy to read and to the point, clarifying what portion of your income is considered non-employee compensation.
On the other hand, the 1099 MISC is more complex.
It has multiple boxes for various types of income, like rent (box 1), royalties (box 2), and other payments. The form is designed to cover a wider range of payment types, so the layout includes different sections depending on what kind of income you receive.
For instance, royalties for intellectual property would be reported in a different box than rent payments.
6. Different Filing Deadlines
Another difference you’ll want to keep in mind is the filing deadlines for the 1099 NEC and 1099 MISC.
Businesses have to file the 1099 NEC by January 31. This one’s pretty firm—no extensions allowed. So, if you’re an independent contractor, expect to get your 1099 NEC early in the year to give you plenty of time to file your taxes.
On the other hand, the 1099 MISC gives businesses a little more breathing room. They must submit it by February 28 (if filing on paper) or March 31 (if filing electronically).
That extra time for the 1099 MISC means businesses aren’t as rushed as with the 1099 NEC. If you’re expecting a 1099 MISC, don’t worry if it arrives a little later in the year.
Just know it’s within that time frame.
7. Backup Withholding Rules
Both forms can involve backup withholding, but the situations in which it applies differ slightly. Backup withholding occurs when a business is required to withhold taxes from a payment due to missing or incorrect taxpayer information.
For the 1099 NEC, backup withholding applies if the contractor fails to provide a valid taxpayer identification number (TIN) or if there’s a mismatch in IRS records.
This ensures taxes are collected even if the contractor’s information isn’t accurate.
Backup withholding can also apply for the 1099 MISC, but it’s more commonly seen in cases involving payments like royalties or prizes. Essentially, the payer must withhold a percentage of the payment (currently 24%) and send it directly to the IRS.
How to Obtain 1099 NEC and 1099 Misc Forms
Getting your 1099 NEC or 1099 MISC is simple with PaystubHero. Whether you’re a business or an independent contractor, we streamline the process so you can focus on what matters.
For businesses, all you need to do is enter the payment details, and the platform takes care of the rest—creating forms that meet IRS requirements.
It’s fast, efficient, and keeps you compliant.
If you’re a freelancer or contractor, and a client hasn’t provided your 1099, PaystubHero can help. You can generate your form to ensure your income records are complete and ready for tax season.
FAQs
Below are answers to some common questions on 1099 NEC vs 1099 Misc.
