Move Over 1099-MISC: The New Form 1099-NEC Is Here!

Move Over 1099-MISC: The New 1099-NEC Is Here!

As you likely know by now, there has been a major change that will impact your customers’ filings for the 2020 tax year and beyond. The IRS has recently released the1099-NEC, a new form replacing Form 1099-MISC box 7 for reporting nonemployee compensation.

Breaking Down the 1099-NEC

The new 1099-NEC is 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 (PATH Act). The new Form 1099-NEC effectively separates certain data from box 7 of the 1099-MISC, in addition to staggering the filing due dates.

Specifically, the new 1099-NEC will capture payments of $600 or more to service providers — typically work done by an independent contractor who is a sole proprietor or member of a partnership. Examples include graphic designers, web developers, cleaning professionals, freelance writers, landscapers, home healthcare assistants and other self-employed individuals.

Like Form 1099-MISC, there are multiple copies of Form 1099-NEC that must be distributed:

  • Copy A: The IRS
  • Copy 1: State tax department, if applicable
  • Copy B: Independent contractor
  • Copy 2: Independent contractor
  • Copy C: Keep for business records

The Future of Form 1099-MISC

Don’t say goodbye to the 1099-MISC just yet. It’s still used for non-box 7 reporting. The type of payments typically required to be reported on this form include royalties, rent, prizes and awards.

Because nonemployee compensation reporting has been removed from Form 1099-MISC for the 2021 tax season and beyond, the IRS has redesigned Form 1099-MISC. The biggest change is Box 7, which is now checked off if the payer made direct sales of $5,000 or more.

Additional reporting is completed in these areas:

  • 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

1099-NEC Filing and Submitting Deadlines

Beginning with the 2020 forms, copies of 1099-NEC forms must generally be distributed and/or postmarked to independent contractors and other recipients by January 31. In 2021, however, the date is February 1 since January 31 falls on a Sunday. The deadline for submitting to the IRS is the same as the recipient deadline — regardless if filing via paper or electronically.

As part of the Taxpayer First Act, many businesses will not be allowed to submit paper forms. For tax year 2020, the threshold remains at 250 and applies separately for each type of return and correction form. However, keep in mind the IRS has plans to decrease this threshold to 100 forms and eventually 10 over the next few years, so it is important to become familiar and comfortable with electronic filing so you are prepared when it is required.

Get More Practical Pointers

Visit eFile4Biz for more information on the 1099-NEC. In addition, this site gives you an easy, accurate way to electronically file 1099s. The 1099-NEC is available on the site and it’s free to try. You only pay when you’re ready to file. And eFile4Biz offers many advantages specifically for accountants, including the ability to set up multiple payers and file on behalf of many clients from a single account.

By Jaime Lizotte, Tax & HR Compliance Solutions Manager, eFile4Biz

TaxConnections Admin

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