Whew…2020 is behind us and there is no denying the fact that it affected all strata of society. As we look forward to 2021 with hope and optimism, it is important to also remember the positives from last year. We fully witnessed resiliency and adaptability among everyone to cope up with the dire situation. That means it all gets easier now, right?
Not exactly. But in truth, it wasn’t all bad. As the novel coronavirus (COVID-19) continues to spread globally, its societal impact is reshaping the way businesses operate. As part of this, the IRS and States are amending their policies to make the reporting easier and avoid any complexities in the process. One of the important changes from the Tax Year 2020 is the introduction of Form 1099 NEC Online for easy reporting of nonemployee compensation and eliminating confusion over the filing deadline.
While all these adjustments are happening, it is important that you are aware of your IRS related tax compliance deadlines along with the new policy changes. There is a lot that needs to be done this tax year and things are not going to be easy at all with the addition of the new form 1099 NEC in the 1099 form series. You can view the updates to the 2021 General Instructions for Certain Information Returns (irs.gov) and the General Instructions for Certain Information Returns (2021) | Internal Revenue Service (irs.gov) here.
About the new Form 1099 NEC introduced in the IRS Form 1099 Series
From the tax year 2020, the IRS has moved all nonemployee compensation (NEC) income reporting from the traditional Form 1099 MISC Online Box 7 to the new form 1099-NEC. All other boxes to report different income types on the traditional Form 1099-MISC still remains the same. There is some shuffling of the boxes on the form 1099 MISC to account for Box 7 that was removed. Other than this, the Form 1099-MISC is mostly the same and can be used to report income types such as rent, other income, or royalties.
In recent years, IRS found significant fraud by individuals submitting tax returns with sizable refund requests using falsified Forms 1099-MISC. They were reporting small amounts of nonemployee compensation but large amounts of withholding. These tax returns used to be submitted and processed before the March 31 filing deadline for form 1099, making it impossible for the IRS to match recipient statements with payer copies of the form 1099.
To overcome this issue, the IRS made some policy changes regarding the 1099 filings and advanced the 1099-MISC IRS reporting deadline for nonemployee compensation to January 31. However, these changes created issues for filers as there were filing deadline confusion and filing errors in the IRS e-file system and wrongly penalized the filers.
To avoid further chaos, the IRS resurrected the 1099-NEC From Online the tax year 2020. It is to be noted that Form 1099-NEC is not a new form and it was used till early 1982 before it was replaced by Form 1099-MISC.
Purpose of Filing Form 1099 NEC Online
Businesses that pay $600 or more during trade or business to independent contractors for services will be impacted by this change. The form 1099-NEC will cover payments to consultants like architects, attorneys, accountants, and any non-employee sales commissions. Payments by federal, state, or local government agencies are also reportable but personal payments are not.
You must generally report a payment as NEC when you meet the following conditions:
- You made the payment to an independent contractor who is not your employee. However, if the independent contractor is registered as a C corporation or S corporation, a 1099-NEC will not be required
- You made payments of at least $600 to the recipient during the year
- You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations)
- You made the payment to an individual, estate, partnership, or, in some cases, a corporation
Tax Year 2020 Filing Implications
The resurrection of 1099 NEC Form Online For 2020 will have some complications for forms 1099 filers, and it will require significant effort to prepare for this filing season. Some of the important issues are:
Form 1099-NEC has not been included in the Combined Federal-State Filing Program by the IRS. A separate state filing will be required based on the format required by each jurisdiction.
Multiple Recipient Statements
From this year, filers must send two separate statements to the payees if the 1099 forms had payments for nonemployee compensation and other reportable income. In the previous years, these recipients received a single recipient statement. Under the rules listed in the IRS publication 1179, these statements should not be combined into a single recipient statement for 2020 reporting.
Due dates for the Form 1099-NEC
As of January 31, 2021, falls on a Sunday, the due date for filing the 1099-NEC Recipient copy, IRS e-file, and IRS paper filing is Feb 1, 2021. There is no automatic extension
What is reported in the new Form 1099-NEC?
Form 1099-NEC has Payer’s information (Name, Address, and TIN), Receiver’s information(Name, Address, and TIN), and the boxes to report Box 1 (non-employee compensation), Box 4 (Federal Tax withheld), and Boxes 5-7 (State information). Use Box 1 to enter the Non-Employee Compensation for $600 or more. Use Box 4 to enter the backup withholding information.
E-File Form 1099 NEC for the Tax Year 2020 with Taxseer
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