The IRS is bringing back Form 1099-NEC, Non-Employee Compensation, for the 2020 tax year (filing in Jan. 2021). It is based on an old form that has been out of use since 1982. Payments companies used to report in 1099-MISC Box 7 as non-employee compensation will now be reported on Form 1099-NEC. The new form is straight-forward with very few boxes.
Why the change?
Form 1099-NEC alleviates confusion around the accelerated deadline of the Protecting Americans from Tax Hikes (PATH) Act of 2015. The PATH Act accelerated the deadline for reporting non-employee compensation from the usual Form 1099-MISC deadline of Feb. 28 (and March 31 for electronic filing) to Jan. 31. If an employer filed a batch of multiple 1099-MISC forms (potentially with data in old Box 7 (nonemployee compensation) and without) after the Jan.31st deadline, the IRS could mistakenly treat them all as late returns and apply fines.
Who gets form 1099-NEC?
File Form 1099-NEC, Nonemployee Compensation (NEC), for each person in the course of your business to whom you have paid at least $600 for the following during the year:
- Services performed by someone who is not your employee (including parts and materials) (box 1);
- Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish (box 1); or
- Payments to an attorney (box 1). The term “attorney” includes a law firm or other provider of legal services.
You must also file Form 1099-NEC for each person from whom you have withheld any federal income tax (report in box 4) under the backup withholding rules regardless of the amount of the payment.
Due dates for 2020 forms
- Distribute Form 1099-NEC to recipients by Jan. 31. (For 2021, the date is Feb. 1, since Jan. 31 falls on a Sunday).
- File Forms 1099-NEC with the IRS by Jan. 31 (again, Feb. 1 in 2021) through paper or electronic filing.
- The new 1099-MISC is still due to recipients by Jan. 31 (again, Feb. 1 in 2021). The due date is pushed back to March 31, 2021, for IRS e-filing, since it no longer contains Box 7.
- As part of the Taxpayer First Act, many businesses will no longer be able to submit paper forms. For tax year 2020, the electronic filing threshold is 100 forms (once regulations are issued) which means any business with 100 forms or more are required to e-file.
Issues to consider
Accounting software mapping. Non-employee compensation payments need to be mapped to the new form. Mapping for other payments may need to be adjusted for a modified version of Form 1099-MISC as several boxes have been shuffled.
State requirements. Individual state filing requirements are still unknown. The decision for the IRS to make the 1099-NEC part of the Combined Federal/State Filing program is still in flux; and according to the IRS, will be made by late August. We anticipate new state 1099-NEC requirements arriving late in the year, making for a hectic January.
Corrections for a prior-year 1099-MISC. So, what if a company must correct a Box 7 amount on a 2019 1099-MISC and the new 1099-MISC Box 7 no longer exists? The IRS says corrections to 1099-MISC box 7 for tax years 2019 and earlier will remain on the old 1099-MISC form.