As if this year didn’t give business owners enough surprises, in September the IRS rolled out one more: Form 1099-NEC. This new form changes the way organizations will report income and expenses for tax year 2020. Here’s what you should know about it.
Use Form 1099-NEC instead of Form 1099-MISC to report payments to independent contractors and vendors.
The IRS requires all businesses to report payments made in the course of trade or business greater than $600 to independent contractors or vendors as non-employee compensation, or NEC. This compensation includes payments for services, service charges, fees, contract payments, and the reporting of any federal or state tax withheld in conjunction with the payment for services. For tax year 2020, you will report NEC compensation in Box 1 of Form 1099-NEC instead of in Box 7 of Form 1099-MISC.
Use Form 1099-MISC to report other types of expenses.
We can’t forget about Form 1099-MISC—it will still be used to report other types of expenses for businesses. The IRS has updated the form to remove Box 7, which previously dealt with nonemployee compensation as discussed above. Rents, prizes and awards, royalties, other income, and other miscellaneous payments are to be reported on Form 1099-MISC for 2020.
All 1099 forms are due to recipients by February 1, 2021.
You must distribute both Form 1099-NEC and 1099-MISC to recipients by February 1, 2021. You must also file Form 1099-NEC, whether you are filing via paper or electronically, with the IRS on February 1, 2021, as well. Form 1099-MISC must be submitted to the IRS by March 1, 2021, via paper filing or by March 31, 2021, via electronic filing.
Get started sooner rather than later.
With the Form 1099-NEC filing date fast approaching, it’s a good idea to make sure your 1099 recipients’ contact and business information is up to date as soon as possible. If you have questions about either 1099 form, we’re here to help. Your PWB CPA can guide you through the 1099 process and answer any questions you may have, so you don’t encounter surprises in 2021.
Contact your PWB advisor today