We think it's important for you to understand how we make money. It's pretty simple, actually. The offers for financial products you see on our platform come from companies who pay us. The money we make helps us give you access to free credit scores and reports and helps us create our other great tools and educational materials.
Compensation may factor into how and where products appear on our platform (and in what order). But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That's why we provide features like your Approval Odds and savings estimates.
Of course, the offers on our platform don't represent all financial products out there, but our goal is to show you as many great options as we can.
This article was fact-checked by our editors and Jennifer Samuel, senior product specialist for Credit Karma Tax®.
If you’re a freelancer or independent contractor, you know you have to juggle multiple tax forms to report and pay your federal income taxes. Starting with the 2020 tax year, there’s one more to add to the mix — the new 1099-NEC.
You’ve likely received 1099-MISC forms in the past for self-employment work. Next year, you may receive the 1099-NEC instead for your 2020 taxes. You’ll need this form when you file your federal income tax return in 2021.
Let’s look at the new form, what’s on it, and what you should do if you receive one.
- What is form 1099-NEC?
- When will I get a 1099-NEC?
- What information is on the 1099-NEC?
- Next steps: What to do with a 1099-NEC
What is form 1099-NEC?
The 1099-NEC, which the IRS has launched for the 2020 tax year, is the newest addition to a long list of “information returns” — forms that businesses use to report certain taxable transactions to the IRS.
The “NEC” in the form name refers to “nonemployee compensation,” which used to get reported on the 1099-MISC information return. Businesses will now use Form 1099-NEC to report independent contractor payments and payments made to other types of service providers who aren’t considered company employees.
What’s reported on the 1099-MISC?
Nonemployee compensation will no longer be reported on the 1099-MISC, but these types of payments still are:
· Prizes and awards
· Medical and healthcare payments
· Crop insurance payouts
· Attorney fees
In addition to these common payments, there are other types of payments and transactions that get reported on the 1099-MISC. Check the IRS page on 1099-MISC for more information.
When will I get a 1099-NEC?
If you’ve worked as a freelancer or independent contractor in 2020, or as a self-employed professional like an attorney or accountant, you should receive a 1099-NEC from each organization that paid you at least $600 during the tax year. Organizations are supposed to file the form by Jan. 31, 2021, for the 2020 tax year.
If you do business as an LLC that’s treated as a C- or S-corporation, though, you might not receive a 1099-NEC.
Learn more about taxes as an independent contractor.
What information is on the 1099-NEC?
Since the 1099-NEC is an information return intended to give the IRS details on taxable transactions, it contains information about both parties involved, including …
- The name, address, phone number and taxpayer identification number, or TIN, of the company that made the payments
- The name, address and TIN of the individual that received the payments
- The amount of nonemployee compensation paid
- The amount of federal or state income tax withheld, if any
Next steps: What to do with a 1099-NEC
When you receive a 1099-NEC, the company that sent it should also have provided the information to the IRS and your state’s taxing authority (for states with an income tax). You’ll need to file your copy with your federal income tax return, and possibly with your state return, if you’re required to file.
If your nonemployee compensation is self-employment income, you’ll also need to report the amount from your 1099-NEC on Schedule C or F and on Schedule SE of your Form 1040 tax return. And you’ll need to file all those forms with your return.
Of course, like all tax forms, you should keep a copy of each 1099-NEC you receive with your securely stored tax documents.
“If your 1099-NEC is wrong, you’ll need to ask the payer to correct it and issue you a corrected form,” says Christina Taylor, senior manager of tax operations for Credit Karma Tax®. “The payer has to send out your form 1099-NEC by the end of January if they’re issuing it to you for compensation you were paid as a non-employee.”
Relevant sources: IRS: About Form 1099-NEC, Nonemployee Compensation | 2020 Form 1099-NEC | IRS: Forms and Associated Taxes for Independent Contractors | IRS: How to report nonemployee compensation and backup withholding | IRS: About Form 1099-MISC, Miscellaneous Income | IRS: Information Return Reporting | IRS: A Guide to Information Returns | Instructions for Form 1099-MISC (2019) | Instructions for Forms 1099-MISC and 1099-NEC (2020)
Jennifer Samuel, senior tax product specialist for Credit Karma Tax®, has more than a decade of experience in the tax preparation industry, including work as a tax analyst and tax preparation professional. She holds a bachelor’s degree in accounting from Saint Leo University. You can find her on LinkedIn.