NEW FORM 1099-NEC REPLACES 1099-MISC FOR REPORTING NON-EMPLOYEE COMPENSATION FOR 2020

by Donna Mullin and Chuck Sabol

A new form will be required by the IRS for tax year 2020 and beyond for businesses who pay non-W-2 employees’ compensation of $600 or more during the year. This form is the 1099-NEC and is used to report payments to individuals such as independent contractors, and payments to non-corporate businesses such as partnerships or LLCs that receive a payment from a business for services over the $600 threshold.

This form is not entirely new, as it was last used in 1982.  Between then and 2020, these payments would have been reported on Form 1099-MISC. Recently, the due date of the 1099-MISC varied depending upon which type of income was being reported.  Form 1099-NEC reduces confusion by having a single filing deadline for each form regardless of the type of payment being reported. For the 1099-NEC, the filing deadline is January 31 of the following year. If this date falls on a weekend or holiday, it is due the next business day.  Therefore, for 2020 payments reported on Form 1099-NEC, the due date is February 1, 2021, the first business day after January 31, which falls on a Sunday.  There will be no 30-day automatic extension unless filers can meet certain hardship conditions. Penalties for missing this deadline range from $50, if filed within 30 days, to $260, if filed on or after August 1.

In addition to individuals, examples of payments reported on Form 1099-NEC include professional service fees to attorneys (including law firms established as corporations), accountants, architects, etc., fees paid by one professional to another (fee-splitting, for example), payments for services including payment for parts or materials used to perform the services if they were incidental to the service and commissions paid to nonemployee salespeople not repaid during the year.  This new form does not affect those who are considered employees.  Employees still must have their wages, tips and withholding reported on Form W-2. Mistakenly reporting employees as independent contractors can carry severe penalties.

There is a requirement with Form 1099-NEC to provide both Copy A and Copy B. Copy A is filed with the IRS and Copy B is sent to the independent contractor.

• Copy A can be electronically filed through the IRS FIRE system, but this system requires formatting through certain software to utilize. A scanned PDF file will not be accepted by the IRS. Also, if you plan on e-filing, you will need a Transmittal Control Code. This can be requested via Form 4419. This form must be submitted at least 30 days prior to the deadline of the 1099-NEC, so anyone planning on using this method will want to start this process immediately. Paper copies of the 1099-NECs can be mailed to the IRS as well if the number to be filed is less than 250, but the IRS encourages e-filing by all filers. Be sure to provide Form 1096 as an attachment if forms are filed by mail.
• The Copy B can be mailed to the independent contractor or provided using methods such as email. However, the requirements for obtaining consent to provide Copy B to the independent contractor using methods other than mail are quite stringent, so it may be beneficial to opt for mailing the Form 1099-NEC.

The due date of January 31 to file Form 1099-NEC applies to both filing with the IRS (regardless of whether e-filing or mailing) as well as providing Copy B to the recipient.  You will also want to keep a copy of these forms for your records.

The use of the new Form 1099-NEC is only used for non-employee compensation and does not eliminate the use of Form 1099-MISC. Form 1099-MISC is still used in all other instances as before. In Box 7 of the 1099-MISC, where non-employee compensation used to be reported, direct sales of $5,000 or more is now recorded. The due dates for the 1099-MISC are January 31 for the recipient, February 28 to the IRS by mail, and March 31 to the IRS if e-filing.

If you have any questions or need assistance with these filing requirements, please contact us.

Donna M. Mullin JD, CPA is Director and Chuck Sabol, CPA is Senior Associate of the Tax Department for Boyer & Ritter LLC. They can be reached at 717-761-7210 or via email at dmullin@cpabr.com or csabol@cpabr.com.