Have you heard? A few years ago the IRS “updated” the annual filing/reporting process for “independent workers.” In the past, organizations used Form 1099-MISC to report fees paid to independent/outside contractors for services – greater than $600 – during a calendar year.
Now, there is a new Form 1099-NEC, Nonemployee Compensation.
The “new” Form 1099-NEC, Nonemployee Compensation is almost five years old, but we still talk to institutions who are confused about which form to file. Note also, that the due date for filing Form 1099-NEC with the IRS is one month earlier than that for pre-2020 1099-MISC.
Basically 1099-NEC has a box for amounts of $600 or more paid for services during the year (box 1) and a box for amounts withheld for federal and/or state taxes. There are exclusions that are much the same as they were for the 1099-MISC in prior years. And – sorry about this – if you paper file, that’s just another packet of returns you’ll likely have to purchase as your Form 1099-NEC’s must be transmitted with a separate Form 1096. (More on this in a future Finance Lab!)
On another matter, be mindful/careful if you compensate adjunct (or any) professors as “outside contractors.” This can be problematic if the IRS examines your records. Magnifying this – with “nonemployees” all separated onto this new form – more attention is called to the number of independent contractors your institution pays each year.
Take a look at the 2024 Form 1099-NEC instructions (starting on page 7 – as Form 1099-MISC and 1099-NEC instructions are combined in the same IRS document) at:
As highlights to those instructions…
File Form 1099-NEC, Nonemployee Compensation (NEC), for each person in the course of your business to whom you have paid the following during the year:
At least $600 in:
Services performed by someone who is not your employee (including parts and materials) (box 1);
Payments to an attorney (box 1). (See Payments to attorneys, later.)
File Form 1099-NEC or Form 1099-MISC to report sales totaling $5,000 or more of consumer products to a person on a buy-sell, a deposit-commission, or other commission basis for resale.
You must also file Form 1099-NEC for each person from whom you have withheld any federal income tax (report in box 4) under the backup withholding rules regardless of the amount of the payment.
What is [Nonemployee Compensation] NEC? If the following four conditions are met, you must generally report a payment as NEC.
You made the payment to someone who is not your employee.
You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations).
You made the payment to an individual, partnership, estate, or, in some cases, a corporation.
You made payments to the payee of at least $600 during the year
Bottom Line:
Many institutions have historically filed Form 1099-MISC to report payments for services of $600 or more to “independent contractors.”
Although you may still file Form 1099-MISC for things like Royalties, Prizes and awards, Rents, Other income payments, etc., “nonemployees” (those for whom you do not withhold federal/state taxes) will need to be reported on Form 1099-NEC.
On Form 1099-NEC you’ll report Nonemployee compensation (box 1); Payer made direct sales totaling $5,000 or more of consumer products for resale – check box (box 2); Federal income tax withheld (box 4); State tax withheld and data (box 5, 6, 7). (Box 3 is “shaded out.”)
You must also file Form 1099-NEC for each person from whom you have withheld any federal income tax (report in box 4) under the backup withholding rules regardless of the amount of the payment.
Written by David C. Moja, CPA www.mojacompany.comThe information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.