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

Form 1099-MISC and Form 1099-NEC are both IRS forms used to report income paid to individuals or businesses outside of wages and salaries. However, they serve different purposes and have unique reporting rules.

Form 1099-NEC (Nonemployee Compensation)

• Purpose: Reports payments of $600 or more to independent contractors and freelancers who are not employees of the business.

• Common Use: Payments for services by nonemployees, such as contractors, freelancers, and self-employed individuals.

• Specific Box: Nonemployee compensation appears in Box 1 of Form 1099-NEC.

• History: The IRS reintroduced Form 1099-NEC in 2020 to separate nonemployee compensation from other types of income.

Form 1099-MISC (Miscellaneous Income)

• Purpose: Reports miscellaneous income that does not qualify as nonemployee compensation.

• Common Use: Rental income, prizes, awards, royalties, and other payments.

• Specific Boxes:

  • Box 1: Rents

  • Box 2: Royalties

  • Box 3: Other income such as prizes or awards

  • Box 7: Direct sales of consumer products for resale

• Change: Nonemployee compensation once reported here now belongs on Form 1099-NEC.

Key Difference

• Form 1099-NEC is used only for nonemployee compensation, such as services from contractors and freelancers.

• Form 1099-MISC covers all other types of miscellaneous income and excludes nonemployee compensation.

By separating these forms, the IRS tracks nonemployee compensation more accurately and reduces delays in processing tax returns.