Which Form to Report Income—W-2 or 1099-NEC?
At a high level, the difference between the two forms is quite simple. A Company uses Form W-2 to report compensation paid to an organization’s employee, while Form 1099-NEC reports nonemployee compensation paid to an independent contractor.
- Employers who withhold payroll taxes issue Form W-2 to employees.
- Payers use Form 1099-NEC, Nonemployee Compensation for people or companies who provide services.
Since Tax Year 2020, you must use Form 1099-NEC, Nonemployee Compensation, to report payments of nonemployee compensation (NEC) previously reported in box 7 on Form 1099-MISC,” said Daniel Ahart, chief tax officer at the tax preparation company Daniel Ahart Tax Service®.
- Report payments made of at least $600 in the course of a trade or business to a person who’s not an employee for services.
- Report payments of $10 or more made in the course of a trade or business in gross royalties or payments of $600 or more made in the course of a trade or business in rents or for other specified purposes
- Report payment information to the IRS and the person or business that received the payment.
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