As the new year starts, it’s important to note that the IRS recently made some changes to common year end forms and updated filing deadlines that are quickly approaching. As a result of the Protecting Americans from Tax Hikes (PATH) Act, Form 1099-NEC is being introduced for the 2020 tax year and is relevant for businesses who have nonemployee compensation and make payments to independent contractors.
In prior tax years, payments to independent contractors were reported on Form 1099-MISC in Box 7. However, starting in the 2020 tax year, payments to independent contractors should instead be reported on Form 1099-NEC for federal purposes. Additionally, the due date has been accelerated to January 31 and the automatic 30-day extension has been eliminated. Note that separate state filings may be required in jurisdiction specific formats.
Form 1099-MISC will continue to be used for other income types such as rent, royalties or miscellaneous income. It has been redesigned with rearranged box numbers so be sure to check revised IRS instructions when filing. Note that the change in forms may result in certain recipients receiving both a Form 1099-NEC and a Form 1099-MISC for the 2020 tax year.
What Does This Mean?
As taxpayers prepare for a busy filing season, businesses should review their 2020 transactions to make sure they are filing the appropriate forms related to nonemployee compensation by January 31, 2021. Form 1099-NEC should be filed if you made payments in the course of your trade or business for amounts of at least $600 to nonemployees. Common transactions that are required to be reported include the following:
- Services performed by someone who is not your employee
- Fees, commissions, prizes or awards
- Payments to an attorney
- Payments made to persons for which you have withheld federal income tax under the backup withholding rules
- Fish and aquatic life purchases
For a comprehensive list of requirements and exceptions, please refer to the IRS instructions or contact your tax advisor.
We’re Here to Help and Can Assist Filing Forms 1099
If you need assistance in filing Forms 1099 or for more information about Bennett Thrasher’s Client Accounting Services, contact Zack Leder, Shane George or your BT advisor by calling 770.396.2200.