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Exceptions to the 1099-NEC

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There are 11 exceptions listed by the IRS that are not to be filed using 1099-NEC.

1099-nec exceptions

The renewed 1099-NEC and accompanying 1099-MISC form changes may make your 2020 tax year filing a bit different than past years. We’ve discussed the dos and don’ts of filing the 1099-NEC as well as federal and state filing, and now let’s talk about some of the exceptions to the 1099-NEC, according to the IRS.

Some payments, payouts, and compensation will not be reported on the 1099-NEC.

Payment Exceptions to 1099-NEC

Though many payments like contract work, fees paid to attorneys, and other payments and merchandise transactions between two professionals are recorded on the 1099-NEC, there are quite a few exceptions.

Payment exceptions include:

  • Payments for merchandise, telegrams, telephone, freight, storage and similar items
  •  Rent payments to property managers and/or real estate agents. Note: these rent payments must, however, be reported on the 1099-MISC by the agent or manager.
  • Payments to a tax-exempt organization, which also includes tax-exempt trusts: IRAs, HSAs, Archer MSAs, Coverdell ESAs, and ABLE (529A) accounts.
  •  Any payments made to or for homeowners from the HFA Hardest Hit Fund or similar state programs.

Compensation Exceptions to 1099-NEC

1099-NEC exceptions also include some forms of compensation.

Per the IRS, there are 1099-NEC exceptions for “compensation for injuries or sickness by the Department of Justice as a public safety officer disability or survivor’s benefit, or under a state program that provides benefits for surviving dependents of a public safety officer who has died as the direct and proximate result of a personal injury sustained in the line of duty.”

Compensation for wrongful incarceration (regardless of criminal offense) which ended in a conviction under federal or state law are also exempt from form 1099-NEC filing.

Wage Exceptions to 1099-NEC

Wages paid to employees are another exception to form 1099-NEC, these will need to be reported on form W-2. Military differential wage payments that are made to employees who are on active duty in the Armed Forces are also an exception.

In most cases, payments made to a corporation (even an LLC classified as a C or S corporation) do not have to be reported on the 1099-NEC.

The renewed 1099-NEC form may cause confusion if and when you need to file any form 1099-MISC as well. For comprehensive instructions for filing 1099-MISC and 1099-NEC, check out this PDF from the IRS website.

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