TECHNICAL GLOSSARY

What is the 1099-MISC form?

Businesses use IRS Form 1099-MISC to file with the IRS for reporting miscellaneous payments made to individuals or businesses throughout a year. Prior to 2020, Form 1099-MISC was used by businesses for reporting non-employee compensation (NEC) to independent contractors and freelancers. Starting with tax year 2020, the IRS created a separate reporting form, Form 1099-NEC, for reporting nonemployee compensation.

What is the 1099-MISC form used for?

The 1099-MISC form is used to report a wide range of payments that are not employee wages, including but not limited to:

1. Rent payments (office space, equipment, land)
2. Prizes and awards
3. Legal settlements
4. Medical and healthcare payments
5. Other income payments of $600 or more
6. Attorney fees (even if the attorney is incorporated)

When a business pays $600 or more in qualifying miscellaneous income to a recipient during the year, it is generally required to issue a Form 1099-MISC

What is the difference between 1099-MISC and 1099-NEC?

The key distinction between these two forms is what type of income they report:

Before 2020, both types of income were reported on Form 1099-MISC. To reduce confusion and improve compliance, the IRS introduced Form 1099-NEC exclusively for contractor payments.