Which tax form must businesses use to report nonemployee compensation beginning with the 2020 tax year?

Businesses are required to use Form 1099-NEC to report nonemployee compensation starting with the 2020 tax year. This change was implemented to clarify the reporting process for payments made to independent contractors and freelancers, which had previously been reported on Form 1099-MISC. By creating a separate form specifically for nonemployee compensation, the IRS aimed to improve the accuracy and efficiency of reporting income for individuals who are not employees of the business. This distinction helps to streamline the tax filing process and reduces confusion between different types of payments.

Form 1099-NEC specifically covers payments of $600 or more made to nonemployees for services rendered, ensuring that these earnings are properly documented and reported. The introduction of the 1099-NEC means that filers now have a precise form dedicated to this category of income, helping to maintain accurate records for tax purposes.