Hurray! It’s Christmas Time! Not only do employees get bonuses, rewards, gifts, etc but also contractors too. Yes, if you are an independent contractor, then you have a chance of getting prizes or rewards. Besides, the business owners then need to file a 1099 NEC Form.
In case, if you are a business owner & operate a business using contractors, then get ready to reward or award the non-employee on this special day. Also, get ready to report the reward paid to the Internal Revenue Service. The IRS requires every business owner to report the compensation paid to a non-employee on a 1099 Information Return Form. Let us know, whether you are required to fill out a 1099 Form or not.
Table of Contents
- What is IRS Form 1099 MISC?
- What is the 1099 NEC Tax Form?
- Which form do I use: 1099-MISC or 1099-NEC?
- Where do I put a Christmas bonus on 1099?
- What if I report a Christmas bonus on 1099 MISC?
What is IRS Form 1099 MISC?
1099 MISC Tax Form is used by the business owners to report miscellaneous income paid to the individual who is not an employee to the IRS. Miscellaneous income includes rents, royalties, prizes and rewards, fish boat proceeds, etc.
What is the 1099 NEC Tax Form?
Form 1099 NEC used to report non-employee compensation paid to the individual who is not a regular employee. Non-employee compensation is the amount paid for performing services in the course of business. For example, professional fees, attorney fees, prizes or rewards, etc.
Which form do I use: 1099-MISC or 1099-NEC?
The most confusing part for an organization is “choosing the right 1099 Tax Form to report the non-employee income”. Because the non-employee payments were previously reported on a single form but with different deadlines. After the acceleration of the PATH Act, the IRS requires businesses to report non-employee payments on “1099 NEC” & miscellaneous income on “1099 MISC”. So, before reporting the income paid check whether the compensation falls under non-employee compensation or miscellaneous income.
Where do I put a Christmas bonus on 1099?
Generally, employees receive bonuses for their performance during festive times. But, not mandatory that only employees receive bonuses or rewards or prizes. Besides, non-employees also receive rewards, prizes, etc for performing service.
As per the IRS, prizes or rewards are paid to a non-employee for performing services and are reported on the “1099 NEC Form”. In case, the prizes or rewards are given for lotteries to a non-employee for not performing services use “1099 MISC”. Thus, to report the Christmas bonus paid to an independent contractor use “1099 NEC Box 2”.
What if I report a Christmas bonus on 1099 MISC?
According to the IRS rules and regulations, the payer who reports inaccurate information on a 1099 Tax Form is subjected to penalties. Furthermore, if the mistake is made intentionally, then the penalty amount will be heavy and hefty. So, it’s better to report the contractor income on a right “1099 Form”. Otherwise, you may end up paying penalties and interests.
Finally, the tax season is about to start. The IRS started accepting 1099 returns for the tax period 2022-23. So, stop filing 1099 in a hurry. Business owners/tax practitioners begin your Form 1099 Online filing now with Form1099Online & stay one step away from penalties and interests.