Get Up to Date on 1099 Tax Information Return Changes

As the tax-filing season draws near, your attention will shift from other business priorities to assisting your clients with their 1099 tax information return filings. To get yourself and your clients prepared, you'll want to brush up on some important changes with the Form 1099-MISC and the new Form 1099-NEC. You'll also want to take a few key steps to ensure accurate, on-time filings by the 2021 deadlines.

Introducing the New 1099-NEC

New for the 2020 tax year and beyond, the 2020 Form 1099-NEC replaces Form 1099-MISC for reporting nonemployee compensation. The 1099-NEC (NEC stands for Non-Employee Compensation) is actually based on an old form that has been out of use since 1982. The IRS revived the form to address some time-management and administrative issues that arose under the Protecting Americans from the Tax Hikes Act of 2015 (the PATH Act). Now, the new 1099-NEC captures data that used to be reported in Box 7 of the 1099-MISC, in addition to staggering the filing due dates.

As with the 1099-MISC previously, nonemployee compensation is any payments to nonemployee service providers, such as independent contractors, freelancers, vendors, consultants and other self-employed individuals (commonly referred to as 1099 workers). This is reported in Box 1 of the 1099-NEC, and Box 4 is for indicating federal withholding for that individual worker. State tax withheld, payer state ID number and state income is reported in Boxes 5, 6 and 7.

According to the IRS, a combination of these four conditions distinguishes a reportable payment in Box 1 of the 1099-NEC:

• It is made to someone who is not your employee
• It is made for services in the course of your trade or business
• It was made to an individual, partnership, estate, or, in some cases, a corporation
• Payments were $600 or more for the calendar year

Please note: Going forward, all of the other income typically reported on a 1099-MISC remains, although the arrangement of the boxes differs. For example:

• Crop insurance proceeds in Box 9
• Gross proceeds to an attorney (not fees) in Box 10
• Section 409A deferrals in Box 12
• Nonqualified deferred compensation income in Box 14

Be Aware of the 2021 Tax Deadlines

The deadline to distribute the new 1099-NEC to recipients is January 31, 2021 (or February 1, since January 31 falls on a Sunday). This is also the date you must file these forms with the IRS – whether you are filing via paper or electronically. Meeting these deadlines is essential to avoid penalties.

Consider these tips to help you avoid the last-minute rush with filing:

• Collect the necessary paperwork — To properly file the 1099-NEC, you need a Form W-9 and a Tax Identification Number (TIN) for each independent contractor. The contractor provides the Form W-9 to your client, which includes his or her Social Security number and TIN. Remind clients to have every contractor, freelancer and consultant fill out this document before services are provided. This will ensure they have the information well in advance of the mandatory filings.
• File 1099-NEC forms early — Rather than wait until January, you can begin filing 1099 forms in fourth quarter. As long as a client’s independent contractors have completed all work for the calendar year – and you have the required information – you can file.
• Decide how you will file — For the most efficient approach this tax season, consider electronic filing with a dedicated website like efile4Biz.com. With this all-inclusive service, you simply enter the proper data online and it’s automatically submitted to the IRS and/or SSA. You can choose to e-file only, or have forms printed and mailed to recipients, if necessary. Efile4Biz.com offers many additional advantages for tax preparers, such as easy uploads with Excel templates, software integrations with QuickBooks and Xero for direct imports, the ability to set up multiple payers from a single account and high-capacity filing if you have lots of forms to file.

Still paper filing? Head over to Formstax.com for a wide selection of 1099 business forms and envelopes (as well as W-2 and 1095 forms).

Get the Solutions and Support You Need

The right preparations can make all the difference with your upcoming tax filings, particularly with the new 1099-NEC for reporting nonemployee compensation. With an effective and affordable e-file solution, you can tap into our expert resources for a smooth, stress-free tax season.