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IRS has moved Non-Employee Compensation from 1099-MISC to the 1099-NEC Form

For the 2020 tax filing in January 2021, the government has elected to again begin using the 1099-NEC form. This change was implemented to address confusion that was created by the PATH (Protection Americans from Tax Hikes) Act of 2015. It is the hope that by moving the reporting of non-employee compensation from the 1099-MISC to the 1099-NEC, it will eliminate some unnecessary penalty notices previously received by filers.

Do you need to file a 1099-NEC? In the course of your trade or business, if payments are made to non-employees of $600 or more and the payment falls into categories like the following, then yes a filing is required:

  • For services performed by someone who is not an employee (including parts & materials if they were incidental to the service).
  • To independent contractors or a business for professional services such as accounting, architecture, office cleaning, contracting, engineering, etc.
  • Issued to an attorney (including law firms established as corporations).
  • For the purchase of fish or other aquatic life.
  • For prizes or awards for service performed by non-employees.
  • Regardless of the dollar amount, withholding of any federal income tax per the backup withholding rules.

The filing deadline for 1099-NEC forms will be February 1, 2021 (to both the IRS and recipient).

As for state filing requirements, the IRS will not be forwarding information to states. Therefore, businesses will need to file electronically.

1099-MISC will still need to be filed for payments such as royalties, rent, and healthcare payments. The form layout has been revised so watch for rearranged box numbers. This filing is due March 31, 2021.

With year-end quickly approaching, the following suggestions will help you prepare:

  • Start earlier; give yourself time to become acquainted with the new form, software updates, and filing changes.
  • Make sure you have all your W-9s on file, and if you are missing any, start now to reach out to vendors.
  • Ensure entries for payments to vendors plus addresses and taxpayer IDs are up-to-date in your accounting system.
  • Refer to https://www.irs.gov/forms-pubs/about-form-1099-nec for additional clarification.

McKonly & Asbury is here to help. Contact our Entrepreneurial Support & Client Accounting team today to discuss your options for your accounting needs. For questions regarding this article, please contact Lindsay Young, Senior Manager at lyoung@macpas.com.

 


About the Author

Mark Heath

Mark is a Partner with McKonly & Asbury. Serving as Director of Tax Services, he brings a wealth of experience in federal, state, and international income as well as franchise tax issues for both publicly and privately held corporatio… Read more

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