One Sub Contractor two different 1099 forms

[Kellie1]

I have a client who pays several Sub Contractors, some cash compensation and some non-cash compensation. They have a prior accountant who filed both 1099-NEC (cash compensation) and 1099-MISC (non-cash compensation) for each contractor who made a combined $600 or more. Example: the NEC may be $400 and the MISC $200 so the contractor received 2 1099s equaling $600. 

My take on the IRS requirements for employers reporting these forms are: the 1099-NEC needs to be $600 or more, and the 1099-MISC needs to be $600 or more. Since neither one met the limit, the employer is not required to file a 1099 for that contractor at all. The contractor is of course required to report all the income from his/her own records on their tax return.

How would you report compensation in this situation?

[sjrcpa]

The payments should all go on 1099-NEC and not 1099-MISC.

If below $600 total per subcontractor, you are correct that no 1099 is needed.

[TaxGuyBill]

Why is the non-cash compensation on a 1099-MISC?  Shouldn't it all be on the 1099-NEC?

[TaxGuyBill]

Susan, you beat me by 50 seconds.  I must type too slowly.  😂

[qbteachmt]

Each specific Box on each form is meant for a specific purpose and has its own reporting threshold. So, although they did not need to file like you describe, it's not wrong that they filed.

1099-Int Boxes 1, 3 or 8 have a reporting minimum of $10, for instance. Not everything is "report it when it hits $600."

The 1099-Misc Box 1 would be used when someone is compensated for a lease payment for some specialty tool, for example. In construction, someone might have brought a Grader to the site, and wanted to charge for operating time and use of the equipment, but wasn't also the operator. Or, specialty welding or concrete equipment is listed like this.

1099-NEC is what used to be Box 7 of the 1099-Misc and is for labor.

It also is not used if the payments are made through a third-party settlement entity, such as credit card, Venmo or PayPay or other bank app.

And of course, these are not reconciled to the tax reporting. They are informational. Your client has proof of expenses they intend to write off as business costs, but that isn't their only cost, just as that might not be the subcontractors' only income.

[qbteachmt]

Oh, as for cash or non-cash. As my State explains it: "Even if you pay in Chickens, that is reportable compensation for the services." And that value goes on the 1099-NEC, which is for services.

[Kellie1]

So my initial thought was it should all go on the NEC as well. The prior accountant separated them due to incomplete information I think. Some non-cash compensation are awards for performance which would be included on the NEC but some are give aways, like a raffle prize randomly drawn at a conference, not connected to performance. That should be separated onto a MISC since it is not subject to SE tax. Unfortunately all non-cash was reported as 'prizes not subject to SE tax' on the MISC probably because the answer to the question about what was in the non-cash amount wasn't fully satisfied. But that is a separate matter. 

I wanted to make sure that my advise that the client did not need to report any 1099-NEC or 1099-MISC that was under $600 was correct - even if the total of the amount, correctly separated, between the 1099-NEC plus the 1099-MISC equaled $600 to one contractor. 

[Kellie1]

Yes, thank you! I realize there are other limits set for other 1099 income. This was specifically just for non employee compensation where the contractor had some non-cash compensation that was not connected to performance and would qualify for 1099-MISC. The total to the contractor as $600 or more but once split between the 2 forms, one or both did not reach the $600 limit. 

[BobKamman]

I think you are finding out why these decisions were made by a former accountant.