How to Fill Out Form 1099-MISC: The Ultimate Step-by-step Guide

The year 2020 has brought on a lot of new changes for business owners and individuals alike. One major change is a redesigned Form 1099-MISC, thanks to the comeback of Form 1099-NEC. Learn about the recent changes, how to fill out Form 1099-MISC, and where to send yours once it’s good to go.

Form 1099-MISC overview

Form 1099-MISC, Miscellaneous Income, is an information return businesses use to report payments and miscellaneous income.

File Form 1099-MISC for each person you have given the following types of payments in the course of your business during the tax year:

At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest. At least $600 in the following: Rents Prizes and awards Other income payments Cash from a notional principal contract to an individual, a partnership or an estate Any fishing boat proceeds Medical and health care payments Crop insurance proceeds Payments to an attorney Section 409A deferrals Nonqualified deferred compensation

Also file Form 1099-MISC for each person you withheld federal income tax from under the backup withholding rules (regardless of the payment amount).

As of tax year 2020, do not use Form 1099-MISC to report contractor payments. This is where Form 1099-NEC comes in. And as always, don’t use a 1099 for W-2 employees.

If you fill out Form 1099-MISC, you also need to complete and send a copy of Form 1096 to the IRS. Form 1096 is a summary form of all the Forms 1099 you file. Show the total amount of miscellaneous income you paid throughout the year on Form 1096.

Form 1099-MISC vs. Form 1099-NEC

In the past, businesses had to use Form 1099-MISC to report independent contractor payments in addition to the other types of miscellaneous income. However in 2020, the IRS brought back Form 1099-NEC, Nonemployee Compensation, to report nonemployee compensation. Business owners used to report nonemployee compensation on Form 1099-NEC until 1982.

So, what is Form 1099-NEC? Good question. Form 1099-NEC is solely used to report independent contractor payments. Starting in 2020, business owners must use Form 1099-NEC to report nonemployee compensation.

Nonemployee compensation typically includes the following payment types to independent contractors:

Fees Commissions Prizes Awards Other forms of compensation for services

Unlike previous years, do not use Form 1099-MISC to report nonemployee compensation. Instead, use Form 1099-NEC for nonemployee compensation payments. According to the IRS, you must file Form 1099-NEC if you paid $600 or more in:

Services performed by someone who is not your employee OR Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish OR Payments to an attorney

Form 1099-NEC is not a replacement for Form 1099-MISC. Form 1099-NEC only replaces the use of Form 1099-MISC for reporting independent contractor payments. You may need to file both Forms 1099-MISC and 1099-NEC.

Preparing to fill out Form 1099-MISC

Before you fill out Form 1099-MISC, you need to gather some information. You should have the following on hand to fill out the form:

Payer’s (that’s you!) name, address, and phone number Your TIN (Taxpayer Identification Number) Recipient’s TIN Recipient’s name and address Your account number, if applicable Amount you paid the recipient in the tax year How to fill out Form 1099-MISC

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