Oil & Gas New 1099 Reporting Requirement - Form 1099-NEC

Historically, Form 1099-MISC has been used to report miscellaneous income – which includes nonemployee compensation – to persons who perform services for a business over the course of the year. Beginning in tax year 2020, the IRS will require businesses to report nonemployee compensation on a new form, 1099-NEC. Nonemployee compensation that was reported in Box 7 on Form 1099-MISC will now be reported in box 1 on Form 1099-NEC.

Part of the reason the new form was introduced was to eliminate confusion surrounding the filing deadline. The previous version of Form 1099-MISC had a different filing deadline for box 7 than for the rest of the boxes on the form. Starting in 2020, the Form 1099-NEC filing deadline is January 31 (February 1 for 2021), while Form 1099-MISC remains the same as prior years: February 28 if filing on paper; March 31 if you file electronically.

The following conditions would require an employer to issue Form 1099-NEC:

• A payment was made to someone who is not an employee
• A payment was made for services rendered over the course of the business year
• The payment was made to an individual, partnership, estate or corporation
• The payment made was at least $600 during the year

So how does this relate to oil and gas companies? Since the IRS treats O&G payments for a working interest as nonemployee compensation, in prior years those payments, like nonemployee compensation, were reported in box 7 on Form 1099-MISC. Beginning in 2020, then, it follows that oil and gas payments for a working interest will be reported on box 1 of Form 1099-NEC.

Reporting of oil and gas royalty payments, meanwhile, has not changed. Gross royalty payments of $10 or more should still be reported in box 2 on Form 1099-MISC. 

For more in-depth instructions, the IRS has dedicated a webpage to Form 1099-NEC with several resources and examples. The webpage may be accessed at https://www.irs.gov/instructions/i1099msc.

If you have any questions on the instructions for Form 1099-NEC, contact your Schneider Downs tax advisor.