The IRS has announced a new form that will be used to report nonemployee compensation beginning with tax year 2020. Previously, nonemployee compensation has been reported on Form 1099-MISC; starting with compensation paid this year, this compensation will be reported on new Form 1099-NEC.
Form 1099-NEC will be used to report any compensation paid to nonemployees, including outside directors, consultants, and independent contractors. It is used for both cash compensation and stock compensation (as well as any other form of compensation paid to these individuals).
In the context of stock compensation, any income that was previously reported in box 7 of Form 1099-MISC will be reported in box 1 of Form 1099-NEC. See the Instructions to Form 1099-NEC for more information.
The IRS has introduced this form because nonemployee compensation is subject to an earlier filing deadline than other compensation reported on Form 1099-MISC. Forms reporting nonemployee compensation have to be filed with the IRS by January 31, whereas Forms 1099-MISC that don’t report nonemployee compensation are still subject to the later February 28 (for paper filings)/March 31 (for electronic filings) deadline. One form with two filing deadlines is admittedly confusing.
There are some situations where income will still be reported on Form 1099-MISC. The two that come to mind are equity awards paid out after an employee’s death, or payout of equity awards transferred to an ex-spouse in a divorce settlement. In these cases, the income attributable to the nonemployee (e.g., the employee’s estate, beneficiary, or ex-spouse) is reported in box 3 of Form 1099-MISC. This income will continue to be reported in this manner.
To be 100% clear, in most cases, income for stock plan transactions will be reported on either Form 1099-MISC or Form 1099-NEC, not both. One situation where the same income will be reported on both forms, however, is when a violation of Section 409A occurs.
Form 1099-NEC will be used for compensation paid to outside directors, consultants, and similar nonemployees beginning in 2020. Compensation paid to these individuals in 2019 should be reported on Form 1099-MISC (and hopefully you’ve already completed those filings, because they were due by January 31).
Thanks to Bruce Brumberg of myStockOptions.com for bringing this development to my attention.