What to Do With a 1099-MISC With NEC in Box 7

Receiving a Form 1099-MISC with an amount in Box 7 for nonemployee compensation is confusing for recent tax years because this reporting method is outdated. The Internal Revenue Service (IRS) now requires businesses to use a different form for these payments. This guide explains the form’s history, what to do if you receive one, and how to properly report the income.

The Shift from Form 1099-MISC to Form 1099-NEC

For tax years prior to 2020, businesses used Box 7 on Form 1099-MISC to report payments of $600 or more to independent contractors. This changed starting with the 2020 tax year, when the IRS reintroduced Form 1099-NEC (Nonemployee Compensation) as the designated document for these payments. If you received a 1099-MISC for 2020 or a later year with income in Box 7, the payer has used an obsolete reporting method.

The primary reason for this shift was to address filing deadline confusion under the Protecting Americans from Tax Hikes (PATH) Act. The old Form 1099-MISC had conflicting deadlines; the due date for nonemployee compensation was January 31, while the deadline for other income was later. This discrepancy caused processing issues for the IRS and confusion for payers. Creating the separate Form 1099-NEC with a firm January 31 deadline streamlined the reporting process.

What to Do if You Receive an Incorrect Form

Upon receiving a 1099-MISC with an amount in Box 7 for a tax year from 2020 onward, the first step is to contact the payer directly. You should inform them that they have reported your nonemployee compensation on an outdated form and request that they issue a corrected document. The proper procedure involves the payer filing a voided Form 1099-MISC and simultaneously issuing a new Form 1099-NEC with the correct income information.

This step can help prevent potential mismatches or inquiries from the IRS. While payers are obligated to issue correct forms, some may be unaware of the change or using outdated software. A polite request is often all that is needed to resolve the discrepancy and ensure your records align with what the IRS expects to see.

How to Report the Income

Regardless of whether the payer issues a corrected form, you are still legally required to report all earned income. The amount shown in Box 7 of the incorrect 1099-MISC represents self-employment income. This income must be reported on Schedule C, Profit or Loss from Business, which is filed with your main Form 1040 tax return. The figure from Box 7 is entered as gross receipts or sales.

From these gross receipts, you are entitled to deduct ordinary and necessary business expenses. These are the costs you incurred to earn that income, such as supplies, vehicle mileage, or home office expenses. Subtracting these expenses from your gross receipts determines your net profit, which is the actual amount of your income subject to tax.

This net profit from Schedule C is then carried over to Schedule SE, Self-Employment Tax. This schedule is used to calculate the Social Security and Medicare taxes that self-employed individuals must pay. The self-employment tax rate is 15.3%, consisting of 12.4% for Social Security on net earnings up to an annual limit—$176,100 for 2025—and 2.9% for Medicare on all net earnings. An extra 0.9% Additional Medicare Tax applies to self-employment income above certain thresholds: $200,000 for single filers, $250,000 for those married filing jointly, and $125,000 for those married filing separately.

Finally, the self-employment tax calculated on Schedule SE is reported on your Form 1040 and added to your income tax liability. You are also able to deduct one-half of your self-employment tax as an adjustment to your income on Form 1040. This deduction accounts for the employer-equivalent portion of the taxes, providing a measure of tax parity with traditionally employed individuals.