2020 is bringing changes to an IRS reporting requirement that affects businesses that make payments to independent contractors, freelancers, or others that provide services to your company (other than as an employee).
In the past, payments of at least $600 to attorneys, independent contractors, or directors, among others, were required to be reported on Form 1099-MISC. Other payments, such as rents, royalties, and prizes, were also reported on this same form, but in different boxes. For the 2020 tax year, a new form, Form 1099-NEC, is required to be filed for all non-employee compensation payments. Other payments that are not non-employee compensation payments will continue to be reported on Form 1099-MISC.
Now is the time to properly identify those payments that may require Form 1099-NEC reporting and ensure you have all the required information on file. To gather the necessary information from independent contractors or other non-corporate or legal service providers, you should request that the service provider send you a completed Form W-9. Additionally, now is the time to ensure that these payments are properly coded in your books or software to ease the stress during reporting time.
Forms 1099-NEC for the 2020 tax year are required to be filed with the IRS on or before 2/1/21, using either paper or electronic filing procedures. Forms 1099-MISC for the 2020 tax year are required to be filed with the IRS by 3/1/21, if you file on paper, or 3/31/21, if you file electronically. Both forms are required to be provided to recipients (service providers/payees) by 2/1/21. (Exception: if you are reporting payments in box 8 or 10 of Form 1099-MISC, you have until 2/16/21 to provide that form to recipients.)
Take a look at this video called Understanding the 1099-NEC for an overview on what you need to know.
Please don’t hesitate to reach out with any questions or if you would like to work with us to prepare your 2020 1099s!