1099-NEC, 1099-MISC & W9 - ENGAGE CPAs

Until the tax year 2020, 1099-MISC was the form that subcontractors received from businesses that paid them more than $600 in a calendar year. However, the 1099-MISC is still used for other payments, but non-employee compensation is now reported on the 1099-NEC (Non-employee compensation) form. It's a form dedicated to independent contractors that are not paid as W-2 employees.
W-2 employees have the benefit of having the business they're working for pay half of their social security and medicare taxes. And they also have the option to pay federal, state, and local income taxes, with every paycheck. A subcontractor/independent contractor/1099 worker does NOT have that same luxury. When you receive 1099 income, you're a business and you're not only responsible for paying your own expenses and tracking them to be used as allowable tax deductions, but you also have to pay ordinary income tax on that income and self-employment tax on that income. Self-employment tax is both halves of the social security and medicare tax (about 15%).
However, before you can get the 1099-NEC issued to you at year-end to show you exactly how much you earned in a given tax year, you have to fill out a W9 and give it to the business you're doing work for. That W9 will tell them how your entity is structured, which entity name to use, which address to use, and the business' EIN. The W9 also informs the business If you're just a sole proprietor using your social security number. Filling out the W9 communicates all of the relevant information to the business so that they have all of your information and can fulfill their required duties, to send you a copy of your 1099-NEC and also send a copy to the IRS.

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