# What is a 1099 Form and How Do 1099-NEC and 1099-MISC Forms Differ? Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2022-04-11 Category: FINANCE Category URL: https://financedigest.com/category/finance Meta Title: Comparing 1099-NEC and 1099-MISC Forms for Your Business Meta Description: Learn the distinctions between the 1099-NEC and 1099-MISC forms to ensure accurate tax reporting for your business. Discover which form is right for you here. URL: https://financedigest.com/what-is-a-1099-form-and-how-do-1099-nec-and-1099-misc-forms-differhtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/istock-1355030241-1736815886573-compressed.jpg) Wading through the bureaucracy of IRS forms, and knowing which are the right forms you need to fill out, is a necessary part of doing business. It can be so frustrating, you just want to throw your hands in the air and hire someone else to do your tax returns. But taking a little time to understand what you [need to fill out and what you need to avoid can be the difference between a smooth tax](https://www.financedigest.com/what-you-need-to-know-about-tax-savings-for-businesses-in-las-vegas-nv.html "What You Need to Know About Tax Savings for Businesses in Las Vegas NV") return and an arduous one. Even if you end up hiring [an accountant for your small business](https://www.forbes.com/sites/theyec/2020/08/18/why-should-you-have-an-accountant-for-your-small-business/), at least you’ll have a fundamental understanding of the tax code, and can provide your accountant with more relevant information pertaining to your business. In this article, we’ll look at and compare the 1099-NEC and 1099-MISC forms, and which one you should use for your business. **Who Receives 1099 Forms?** On a basic level, a 1099 form is [issued to anyone](https://www.financedigest.com/more-than-one-in-ten-brits-are-embarrassed-to-talk-to-anyone-about-their-money-issues.html "More than one in ten Brits are embarrassed to talk to anyone about their money issues") who received more than $600 in “wage income” during the tax year. However, there are actually many different types of 1099 forms – [Keepertax.com](https://www.keepertax.com/posts/what-is-a-1099-form), so the one you receive (or need to send out to employees) will depend on numerous factors, including: - The type of income you receive. - Whether you are a sole proprietor or a corporation. - The type of income you earned, including your salary, tips, [independent contractor income](https://www.financedigest.com/financial-independence-through-passive-income-leads-to-a-happier-retirement.html "Financial Independence Through Passive Income Leads to a Happier Retirement"), dividends, and capital gains - Any payments or perks you might have received, such as health insurance, healthcare discounts, [life insurance](https://www.financedigest.com/types-of-life-insurance.html "Types of Life Insurance"), retirement savings, or mortgage interest. So while there’s a rather extensive list of 1099 forms, we’ll be focusing specifically on the 1099-NEC and 1099-MISC for the purpose of this article. **What is the 1099-NEC?** The 1099-NEC is for reporting employment income that was earned outside of typical W-2 wages, meaning it can apply to earnings from freelance work, independent contracting, or [services rendered for an entity that you are not an employee](https://www.financedigest.com/four-tips-to-help-reduce-employee-ghosting-in-financial-services.html "Four tips to help reduce employee ghosting in financial services") of. In other words, it is a form for reporting income (or payments) that are not in the form of W-2 wages. There are some [regulations that will determine whether or not a 1099-NEC form is necessary](https://www.financedigest.com/devere-ceo-cryptocurrency-regulation-is-necessary-and-must-be-welcomed.html "deVere CEO: Cryptocurrency regulation is necessary and must be welcomed"), which include: - The [payment is for services](https://www.financedigest.com/igtbs-payments-services-hub-faq.html "iGTB’s Payments Services Hub – FAQ") and not products. - The [services rendered have a business](https://www.financedigest.com/more-companies-investing-heavily-in-business-services-software.html "More Companies Investing Heavily In Business Services Software") purpose. - You work with an LLC sole proprietorship. It’s important to note that you don’t need to [issue 1099-NEC forms to C and S corporations](https://www.financedigest.com/9-issues-in-corporate-finance-and-strategies-to-overcome-them.html "9 Issues in Corporate Finance and Strategies to Overcome Them"), but with some exceptions. You may still need to issue 1099-NEC forms to S or C [corporations if payments](https://www.financedigest.com/what-does-the-future-hold-for-corporate-payments.html "What Does the Future Hold for Corporate Payments?") were made for: - Medical and [health care](https://www.financedigest.com/health-care-information-systems-market-growth-set-to-surge-significantly-during-2018-2026.html "Health Care Information Systems Market Growth Set to Surge Significantly during 2018 – 2026"). - [Attorney and law](https://www.financedigest.com/attorney-and-founder-of-chukwuma-law-group-jeff-c-chukwuma-on-intuition-as-a-tool-for-successful-outcomes.html "Attorney and Founder of Chukwuma Law Group, Jeff C. Chukwuma on Intuition as a Tool for Successful Outcomes") fees. - Substitute payments for dividends and tax-exempt interests. Essentially, businesses must issue 1099-NECs to any non-employee they have paid more than $600 for services (not products, an important distinction). **What is the 1099-MISC?** The 1099-MISC is for some types of untaxed income that wasn’t in the form of W-2 wages. This mainly applies to all forms of self-employment income, but can also apply to other scenarios. Like the 1099-NEC, this [form is necessary when payments](https://www.financedigest.com/nmis-agreement-to-acquire-creditcall-will-form-a-new-and-innovative-omni-channel-payments-platform.html "NMI’s Agreement to Acquire Creditcall Will Form a New and Innovative Omni-Channel Payments Platform") involved are $600 or more. Some of the scenarios where you may need a 1099-MISC include: - [Prize winnings](https://www.financedigest.com/frances-ernaux-who-long-scrutinised-self-wins-nobel-literature-prize.html "France’s Ernaux, who long scrutinised self, wins Nobel literature prize"), such as raffles and gambling winnings. - Payments received from foreign [financial institutions](https://www.financedigest.com/a-cloud-migration-guide-for-financial-institutions.html "A Cloud Migration Guide for Financial Institutions") to your U.S. [bank account](https://www.financedigest.com/how-accountants-can-improve-financial-planning-and-results-through-open-banking-to-help-smes.html "How accountants can improve financial planning and results through Open Banking to help SMEs"). - Purchasing and reselling goods worth at least $5,000. **Is 1099-NEC necessary if I purchased products/software as a service?** While there is a clear distinction between products (goods) and rendered services, the [rising concept of products-as-a-service](https://www.financedigest.com/digital-transformation-for-the-world-of-finance-the-rise-in-collaboration-tools-and-saas-applications.html) (and SaaS, software-as-a-service) can make things confusing, because the 1099-NEC is not used for payments made on products. Because a product-as-a-service, and also software-as-a-service, is the [selling of a service or outcome derived from a product](https://www.financedigest.com/itv-shares-jump-on-reports-it-could-sell-stake-in-production-arm.html "ITV shares jump on reports it could sell stake in production arm"), you might wonder if the IRS considers PaaS / SaaS to be goods, or service rendered? The answer to this question is actually a bit complicated. Matters are complicated further by different state laws, which may individually consider SaaS to either be a service, or a tangible product (software) that is taxable – and whether the [company or an independent contractor](https://www.financedigest.com/advice-for-contractors-closing-down-their-contracting-company.html "Advice for contractors closing down their contracting company") is consulting you on the product-as-a-service. In this sort of scenario, it becomes very [important to talk to an accountant familiar with the laws](https://www.financedigest.com/eu-seeks-deal-on-law-preventing-import-of-deforestation-linked-goods.html "EU seeks deal on law preventing import of deforestation-linked goods") of your state to determine how to proceed. **Brought to you by Paradigm Digital Ltd** --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---