Working with contractors at your business or have clients who are?
Be mindful of the following information for the 2020 tax year.
For those business taxpayers paying or receiving non-employee compensation (aka contractors), there is now a new IRS form that you must use in your reporting. Payers must report any payment of $600 or more to a payee in the calendar year by completing Form 1099-NEC (Non-employee Compensation).
Reasoning For New Form
It is important to note that all non-employee compensation (NEC) will be entered on this new form instead of entering it on the 1099-MISC Form that was used prior to the year 2020 for reporting. This was for services performed by someone who is not treated as an employee of the business. These contractor related payments are referred to as non-employee compensation and the payment amount was placed in the form’s box 7.
The IRS announced in July 2019 that, for 2020 and thereafter, it will reintroduce the previously retired Form 1099-NEC, which was last used in the 1980’s. So take a jump back to big hair, loud make-up, E.T., Cabbage Patch, Atari, M*A*S*H, and New Kids On The Block… because “Hey, if it’s not broke…” And so much for retirement!
Form 1099-NEC was reintroduced beginning last summer mostly with the intent of alleviating any confusion caused by the separate deadlines for Form 1099-MISC that report NEC in box 7, and for all other Form 1099-MISC (for paper filers and electronic filers).
As far as the IRS modified Form 1099-MISC (with NEC removed), it will become effective for 2020 reporting as well. The filing deadline for Form 1099-MISC will be February 28, 2021, if mailed to the IRS (March 31, 2021, if filed electronically) and January 31, 2021, to the recipients. Effective for 2020, there will no longer be two different filing deadlines for Form 1099-MISC to the IRS because, as mentioned, NEC will be reported separately on Form 1099-NEC.
Businesses Who Must File
Any payers of NEC will now use Form 1099-NEC to report those payments. Generally, payers must file Form 1099-NEC by the January 31 deadline. This applies to both the recipient and IRS copies. However, for 2020 tax returns, the deadline will be February 1, 2021. This is due to January 31, 2021, being on a Sunday.
There isn’t an automatic 30-day extension to file Form 1099-NEC. However, under certain hardship situations, you may be able to file an extension.
Admittedly, it was probably too early for your palate to have us bringing up taxes, but we’re all about being prepared and want the same for our clients. With all of the other changes in 2020 can you blame us?
NOT INTENDED TO PROVIDE LEGAL, ACCOUNTING OR OTHER PROFESSIONAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.