In case you haven’t heard, there’s a new tax form on the block for business filers for the 2020 tax year. Form 1099-NEC, Nonemployee Compensation, will be used instead of Form 1099-MISC to report amounts paid by businesses to independent contractors and others who provide services.
In actuality, the new Form 1099-NEC isn’t entirely “new.” It’s an updated version of a form that was discontinued in the 1980s. But this new form may cause some unexpected headaches for business filers next year.
Background information: Previously, business entities used Form 1099-MISC to report payments totaling at least $600 in a calendar year for services performed in a trade or business by someone who isn’t treated as an employee. Yet, there are numerous other uses for Form 1099-MISC.
For instance, a business must report other income, like bonuses paid to salespeople at car dealerships, in Box 3. The nonemployee compensation paid to outside workers was reported in Box 7.
Now Form 1099-NEC has been reintroduced to avoid confusion caused by separate deadlines for Form 1099-MISC reporting of nonemployee compensation in Box 7 and all other Forms 1099-MISC. As a result, the IRS announced last year that it was resurrecting Form 1099-NEC for the 2020 tax year and thereafter. Note that this change applies to businesses of all sizes ranging from corporate conglomerates to neighborhood delis and bakeries.
Generally, payers must file Form 1099-NEC by January 31 of the year following the year in which the services were performed. In 2020, the filing deadline will be February 1, 2021 as January 31 will fall on a Sunday. Although there’s no automatic 30-day extension to file Form 1099-NEC, an extension to file may be available for taxpayers experiencing hardships.
Another wrinkle: According to Publication 1220 recently released by the IRS, the restored Form 1099-NEC won’t be covered by the IRS 1099 Combined Federal/State Filing Program (CF/SF). Under the CF/SF Program, the IRS forwards data from certain key forms to the appropriate states.
Without this assistance, business entities may end up scrambling to meet state filing requirements or deadlines. The exact rules vary from state-to-state. Be forewarned!
For more information please visit: https://www.accountingweb.com/tax/irs/form-1099-nec-officially-replaces-1099-misc-for-reporting-payments-to-nonemployees