Which form is used to report nonemployee compensation?

The form used to report nonemployee compensation is Form 1099-NEC, which stands for Nonemployee Compensation. This form was reintroduced by the IRS for tax year 2020 to specifically report payments made to nonemployees, such as independent contractors or freelancers, who are paid $600 or more during the tax year for services provided.

Using Form 1099-NEC helps streamline the reporting process for businesses that engage contractors, ensuring that these payments are separately identified from other types of income reported on forms like the 1099-MISC. As a result, this distinction aids both businesses and the IRS in tracking and ensuring proper tax compliance on compensation paid outside of traditional employment.

Forms like 1099-MISC and W-2 serve different purposes, with W-2 specifically intended for employees and their wages, and 1099-MISC used for various types of income that do not fall under the nonemployee compensation category since the reformation of the reporting requirements.