Form 1099-NEC vs. MISC: How to Ready for Next Week’s New IRS Deadline

It’s tax period again and there’s something you should know — the IRS requires your company to file Form 1099-NEC Online (Non-Employee Compensation) to report non-employee compensation to the IRS one month earlier than in last years.

If your business paid an independent contractor more than $600 this year for services provided to your company in 2020, you’ll need to file a new (IRS) tax form by Feb. 1, 2021.

1099 NEC From

Yes, this is a change, a bit intricate and urgent.

You’ll need to specify the amounts you’ve paid to each of these types of contractors you do not employ in your business. These include payments to:

  • Freelancers
  • accountants, architects and engineers
  • non-employee sales commissions
  • workers
  • oil and gas payments
  • commissions paid to lottery ticket sales agents
  • services from anyone who is not your employee
  • cash payments for fish you buy from anyone in the business of catching fish and

You don’t have to file a 1099-NEC Form Online for payments to limited liability corporations and for telegrams, merchandise, freight, telephone, storage and similar items.

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1099-NEC vs. 1099-MISC: What’s the difference?

The 1099-NEC Form replaces a section of Form 1099-MISC — Miscellaneous Income where these non-employee payments had been reported in previous years. Under the new IRS policy, these payments need to be posted on Form 1099-NEC.

Details about the new Form 1099-NEC Online

Form 1099-NEC replaces Box 7 on Form 1099-MISC. Here’s a breakdown of the new form’s key sections:

  • report non-employee compensation in Box 1
  • report federal tax withheld in Box 4
  • record state tax withheld, state/payer’s state number and state income in Boxes 5, 6 and 7 respectively

There’s one shade you need to know: how to pay attorneys. Payments for lawyer services belong on Form 1099-NEC Online. By contrast, payments for legal settlement fees should be reported on the Form 1099-MISC Online.

When you e-file this 1099-NEC form, send a copy to the IRS and to each independent contractor by Jan. 31.

Penalties for Due Date

“Tax payer will have a $50 penalty applied for information returns filed after the deadline but within 30 days. The penalties growth to $110 for returns filed after 30 days beyond the deadline but before August 1, 2021. Enterprises that file after August 1, 2021 will get penalized $270 per form.”

 The Golden Rules to Total Big during Tax Time

You can try to file for an allowance of 30 days to file Form 1099-NEC using Form 8809. Send a letter to the IRS with your tax ID number, address and reason for the delay. But there’s no guarantee your request will be approved.

What would you do to top make for Form 1099-NEC Online?

Payment with credit cards

As you prepare this Form 1099-NEC, remember that you only need to report payments made by checks, cash and direct deposits. Credit card, debit card, gift card and third-party payment providers such as PayPal are responsible for reporting credit card payments to the IRS on Form 1099-K.

So to avoid the stress of filling out so many 1099-NEC forms, pay independent contractors with credit cards.

Send 1099-NEC Forms E-Filing

If you plan to file 250 or more 1099-NEC payments, the IRS requires you send them electronically and can penalize your business if you don’t. If you’re filing 250 or fewer, send by regular mail.

Why the change to Form 1099-NEC Filing?

Under the previous IRS system, independent contractors had to file their yearly damages by Jan. 31. But here’s the catch: Enterprises didn’t have to report non-employment compensation until one month later.

So independent contractors could file their taxes before the IRS received the non-employee compensation amounts. As a result, the contractors’ total compensations for the year appeared lower than they actually were. So they paid lower taxes and received more IRS tax refunds.

By fast-tracking the due date, the IRS can more quickly figure out the total annual income of these contractors and tax them accordingly. The IRS recommends sending these forms in an e-file format. You can find instructions on both tax forms here.

What payments can you still record on Form 1099-MISC?

For other types of payments your company made in 2020, you can continue to report them on Form 1099-MISC. Those include:

  • Rents
  • Medical and healthcare payments
  • Royalties
  • Crop insurance proceeds
  • Prizes and awards and
  • Other income payments.

 

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