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.

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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

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