The IRS has made a major change that could affect your information returns reporting for the upcoming season. Form 1099-NEC is taking the place of what used to be recorded in box 7 of Form 1099-MISC. Typically, this form is issued to contractors, janitorial services, third-party accounts and any other worker paid for services who is not on the payroll. Following are key points about this new form.

1. The 1099-NEC must be used for the 2020 tax year and beyond. In other words, your independent contractors will now receive Form1099-NEC.
2. NEC stands for Nonemployee Compensation. 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 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.
   
3. You file a 1099-NEC if the payment is $600 or more. If it’s less than that amount, a 1099-NEC is not required and should not be issued. If you paid a contractor $500 in 2020 to paint your offices, you don’t have to complete a 1099-NEC. However, if you paid the contractor $500 in March, and another $200 in June, you must file the form because the total amount is more than $600.
4. The payment must be for services. A 1099-NEC is not used to report fees for physical products.
5. Services must be performed for business purposes. If you contract with a worker to remodel your breakroom, for example, a 1099-NEC would likely be issued. But if you contracted with that worker to update the kitchen in your home, you do not need to file because the remodeling was for personal reasons.
6. In general, you don’t issue 1099-NEC forms to S-Corporations and C-Corporations. But there are some exceptions including medical payments, payments to an attorney and substitute payments in lieu of dividends or tax-exempt interest.
7. You will need to file a 1099-NEC form if you’re working with an LLC sole proprietorship. An easy way to tell is to check the W-9 form the worker provided. If the W-9 indicates they are an LLC that is taxed as a sole proprietorship, you need to file a form. If their LLC is taxed as an S- or C-Corp, you do not (unless an exception applies).
8. You should verify each recipient’s taxpayer ID to ensure seamless processing. You should have a Form W-9 from each recipient with the current taxpayer ID before you complete Form 1099-NEC.
9. The deadline to distribute the 1099-NEC to recipients is February 1, 2021. This is because 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.
10. More guidance is available. Visit efile4Biz to see an image of the 1099-NEC along with completion pointers. Plus, efile4Biz gives you an easy, accurate way to electronically file your 1099s ― so you can meet IRS deadlines and avoid penalties. The 1099-NEC is available on the site and it’s free to try. You only pay when you’re ready to file.

By Jaime Lizotte, Tax & HR Compliance Solutions Manager

Go to eFile4Biz Today For Easy Filing Of W2s and 1099s