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.
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:
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:
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:
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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.