Payroll
1099-NEC vs 1099-MISC
1099-NEC reports payments to independent contractors for services; 1099-MISC covers other payments like rent, royalties, prizes, and legal settlements.
The IRS split non-employee compensation off of Form 1099-MISC into its own Form 1099-NEC in 2020. Since then, the rule of thumb is simple: pay a contractor for services, use 1099-NEC. Pay for almost anything else that meets a threshold, use 1099-MISC.
1099-NEC covers payments of $600 or more in a calendar year to any non-employee for services — freelancers, subcontractors, outside sales reps, professional-services providers. 1099-MISC covers rent paid to a landlord ($600), royalties ($10), gross proceeds paid to an attorney (any amount), prizes and awards ($600), and a handful of other categories.
Both are due to the recipient by January 31, and both must be filed with the IRS. Payments to a C-corp or S-corp generally do not require a 1099, with a big exception: attorney fees always get reported, corporate or not.
Common pitfalls
- Reporting contractor payments on the old 1099-MISC out of habit — the IRS reclassifies and can assess penalties
- Not collecting a W-9 from every vendor before their first payment — you cannot generate a correct 1099 without one
- Reporting reimbursed expenses on the 1099 alongside the fee, inflating what the contractor has to reconcile on their return
- Missing attorney and landlord payments because they were paid from your business bank account without an obvious vendor tag
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