The IRS has implemented changes to the reporting of Non-Employee Compensation (“NEC”) for 2020. Non-employee compensation will now be reported on Form 1099-NEC. This form does not replace the 1099-MISC, instead it separates the non-employee compensation for reporting on its own form. The IRS introduced Form 1099-NEC to clarify the separate filing deadlines for Forms 1099-MISC and 1099-NEC.
Form 1099-NEC has a single filing deadline for all payments reported on this form. IRS filing requirements state that Form 1099-NEC should be filed for each non-employee individual, partnership, estate, or in some cases, a corporation, you have paid the following during the year:
At least $600 in:
1. Services performed by someone who is not your employee (including parts and materials)
2. Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish; or
3. Payments for professional service fees (such as fees to attorneys, accountants, architects, etc.)
Form 1099-NEC needs to be provided to the person or business who received the non-employee compensation and must be filed with the IRS on or before January 31 (February 1 in 2021, since January 31 falls on a Sunday). This form can be filed with the IRS electronically or by mail if you have less than 250 information returns for the tax year. Information returns include Forms 1099-MISC, 1099-NEC, W-2, 5498, etc. Not all states require information be reported to them, so it is important to know whether your state requires filing in addition to the federal filing.
It is critical that the recipient’s taxpayer ID and other pertinent information are reported correctly on all information returns, including Form 1099-NEC. Often, we see a trade name or a shortened version of a name considered, which is incorrect. For example, our firm’s legal name is Henderson Hutcherson & McCullough, PLLC and this would need to be used as opposed to HHM CPAs. Businesses must have a W-9 on file for each 1099-MISC or 1099-NEC issued with the correct taxpayer ID and legal name.
Below is a picture of Form 1099-NEC.
The IRS has redesigned Form 1099-MISC as well. The major change, Box 7, has been repurposed to report direct sales of $5,000 or more of consumer products to a buyer (recipient) for resale. The filing deadline for Form 1099-MISC is March 1, 2021 for paper filing, or March 31, 2021 if electronically filed. However, the form still needs to be provided to recipient by February 1, 2021.
If you have any questions or need clarification on the new reporting requirements, remember to consult your tax professional.