What is the Form 1099-NEC?

If you are self-employed, a freelancer, contractor, or work a side gig, you may be used to receiving Form 1099-MISC that reports your self-employed income at tax time. Beginning with tax year 2020, the IRS will require your self-employment income of $600 or more to be reported on Form 1099-NEC (non-employee compensation) instead of Form 1099-MISC, so look out for that form in the mail beginning January 31.

Let’s take a look at who will receive this form, what exactly non-employee compensation is, what this all means if you are self-employed, and when you can expect to receive this form. 

Who Will Receive Form 1099-NEC (Non-employee compensation)? 

If you are self-employed, a freelancer, contractor, or work a side gig and made $600 or more, you will now receive Form 1099-NEC instead of Form 1099-MISC. Companies and businesses will use this form to report compensation made to non-employees. 

What is Non-Employee Compensation? 

The IRS explains that if the following four conditions below are met, then the payments must be reported as non-employee compensation: 

1. The payment was made to someone who is not an employee
2. The payment was for services in the course of trade or business (including government agencies and nonprofit organizations)
3. The payment was made to an individual, partnership, estate, or maybe a corporation
4. The payments to a person totaled $600 or more during the year 

 Also, a business may need to file a Form 1099-NEC if they withheld federal income tax under backup withholding rules even if the amount if less than $600.

What are some types of payments that would be reported on 1099-NEC? 

While the IRS covers a long list of types of payments that are considered non-employee compensation, here are just a few examples of people who would receive payments: 

• Self-employed, freelancers, contractors, and side gig workers
• Attorneys, lawyers, accountants, architects, contractors, and  who got paid for a professional service 
• Fees paid by one professional to another (for example, if they were splitting a fee or paying a referral fee) 
• Commission payments to non-employee salespeople not repaid during the year  

What does this mean if you are self-employed?

If you are self-employed and a business paid you $600 or more for non-employee compensation, you can expect to receive this form. 

But the Form 1099-NEC should not be used to report personal payments made to self-employed individuals. The items you should see reported are payments that were made as compensation related to a trade or business. 

The payments made that are not reportable on the 1099-NEC will likely be recorded on Form 1099-MISC. The Form 1099-MISC is still around, but it’s just used for reporting miscellaneous income like rent, prizes, and awards. 

Note that the amounts reported in Box 1 of Form 1099-NEC are generally reported as self-employment income and thus would be subject to self-employment tax. 

What form will I receive if I worked a side-gig? 

This year, you may have gotten creative with the ways you earned income. 

Many have taken to side-gigs such as driving for a ride-share company or selling goods via Etsy to earn extra money. If this isn’t your first year on one of those platforms, you may be accustomed to getting your earnings reported on a Form 1099-MISC or 1099-K. 

But now, depending on how you received payments, you may receive both a Form 1099-NEC and a Form 1099-K from these side gig platforms. 

Generally, for ride sharing apps, the money for your driving services will be reported on a Form 1099-NEC. Before 2022, if you were paid by a third-party payment processor or payment app and you had at least 200 transactions and $20,000 or more in sales, you would receive Form 1099-K. Bonuses or referral fees can also be reported on Form 1099-K. 

As it relates to the goods you sold on Etsy, if you sold $600 or more, then you should receive a Form 1099-NEC with that amount. But if you happened to do more than $20,000 worth of sales and had at least 200 transactions, then you may also receive a 1099-K. 

Beginning with tax year 2022, if someone receives payment for goods and services through a third-party payment network, their income will be reported on Form 1099-K if the amount processed exceeds $600 as opposed to the current Form 1099-K reporting requirement of 200 transactions and $20,000. However, the IRS announced a delay in reporting thresholds for third-party settlement organizations (TPSOs). As a result of this delay, TPSOs will not be required to report tax year 2023 transactions on a Form 1099-K at the lower amount of over $600. This means that for tax year 2023 (the taxes you file in 2024) the existing 1099-K reporting threshold of the aggregate of more than $20,000 in payments and over 200 transactions will remain in effect. 

The IRS is currently planning for a threshold of $5,000 for tax year 2024 (the taxes you file in 2025) as part of the phase in to implement the lower over $600 threshold enacted under the American Rescue Plan. This change could impact people working in the gig economy, online sellers, independent contractors, and other self-employed business owners.

When will the 1099-NEC arrive? 

These 1099-NEC forms should arrive by January 31st each year. 

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