IRS Announces Changes to Form 1099
On November 18, 2020, the IRS announced new requirements in the way businesses would report non-employee compensation. Previously, businesses used Form 1099-MISC to report all the miscellaneous income they paid out during the year. Now, the IRS has introduced Form 1099-NEC as an additional, and in some cases, alternative, reporting document. So, what should businesses know about the new 1099-NEC?
- The 1099-NEC is applicable and required for the tax year 2020 and will be used going forward.
- The 1099-NEC is used specifically for reporting non-employee compensation. Non-employees include people, not on your payroll who have been contracted to complete specific projects or duties, such as independent contractors, gig workers, or self-employed individuals. Such individuals’ compensation was previously reported in box 7 of Form 1099-MISC and will now be reported on the new form.
- If you paid a non-employee, such as a contractor, more than $600 for services in 2020, you would need to file Form 1099-NEC.
- Businesses will still use Form 1099-MISC to report other miscellaneous income paid out during the year, including rents, prizes, and payments for legal settlements.
- The business’s responsibility is to file the Form 1099-NEC with the IRS and provide a copy to the contractor.
- The Form 1099-NEC must be submitted to the IRS by January 31 (or, if like this year, January 31 falls on a weekend, you have until the next business day, which in this case is February 1, 2021). You can file by paper or electronically. The form must be provided to the contractor by the same due date.
- Businesses are also still responsible for submitting the Form 1099-MISC to the IRS by March 1 (if filing by paper) or March 31 (if filing electronically).
Angela Lawrence, Quality Control Coordinator at Klatzkin, contributed to this post.
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©2020 Klatzkin & Company LLP. The above represents our best understanding and interpretation of the material covered as of this post’s date and should not be construed as accounting, tax, or financial advice. Please consult your tax advisor concerning your specific situation.