It’s the IRS tax reporting time 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 by the due date of 31-Jan-2022. 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 the aforementioned IRS form 1099 NEC due date.
Form 1099 NEC EFile IRS deadline
You’ll need to specify the amounts in the form 1099 NEC that you’ve paid to the contractors that are not your employees. These include payments to:
- accountants, architects, and engineers
- non-employee sales commissions
- 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
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 reported 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 important difference that you need to know when you pay to the attorneys. Payments for lawyer services should be reported on Form 1099-NEC Online. By contrast, payments for legal settlement fees should be reported on Form 1099-MISC Online.
When you e-file this 1099-NEC form, please make sure to mail the recipient copy to each independent contractor by Jan. 31.
Penalties for Due Date
“Taxpayer will have a $50 penalty applied for information returns filed after the deadline but within 30 days. The penalties grow to $110 for returns filed after 30 days beyond the deadline but before August 1, 2021. Enterprises that file after August 1, 2022, will get penalized $270 per form.”
You can try to file for an extension of 30 days to file Form 1099-NEC using Form 8809 online or you can mail the form to the IRS with your tax ID number, address and reason for the delay. But there’s no guarantee your request will be approved.
Why was Form 1099 NEC introduced?
Form 1099 NEC was retired around 1983 and was reintroduced for the tax year 2020 for business and individual 1099 filing needs to address confusion created by the PATH (Protecting Americans from Tax Hikes) Act of 2015. The PATH act created different due dates for different types of income reported on Form 1099 MISC, leading to confusion for filers and possible penalties for late filings. It also increased the risk of tax fraud for many employers due to the urgency to file the forms with little attention to detail. The IRS further required two filings of the 1099-MISC form from 2018: one filing for forms that contained information in Box 7 and another for the remaining boxes. Due to these multiple forms, there were penalties if a form with Box 7 information was filed incorrectly. To make matters more complex, there were multiple filing dates. Forms with Box 7 information were due on the last day of January, while Forms 1099-MISC with no Box 7 information were due by the last day of February for paper filers and the last day of March for electronic filers.
From the tax year 2020, IRS decided to fix these complications by reintroducing the 1099-NEC and a consistent due date of the last day of January for both paper and electronic filers, with no option of automatic extension.
What is the required information to complete 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.
When is it compulsory to E-File Form 1099-NEC?
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 expenses 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.
What payments can you still record on Form 1099-MISC?
For other types of payments your company made in tax year 2021, you can continue to report them on Form 1099-MISC. Those include:
- Medical and healthcare payments
- Crop insurance proceeds
- Prizes and awards and
- Other income payments.
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