The IRS is bringing back the 1099-NEC form to report non-employee compensation. The 1099-NEC form was used in the past but was discontinued in 1982 and has returned starting for the 2020 tax reporting year. Since the discontinuation of the 1099-NEC Form 38 years ago, nonemployee compensation had been reported on the 1099-MISC in Box 7 when filing with the IRS.
In 2015, the Protecting Americans from Tax Hikes Act (PATH Act) changed the due date for filing Form 1099-MISC with Box 7 payments with the IRS to January 31st. Before this legislation, the due date for e-filing the 1099-MISC, regardless of which boxes were being reported, was March 31st. This changed in the reporting deadline caused confusion for employers, taxpayers and the IRS. Employers began separating the types of payments reported on 1099-MISC forms in order to meet the required updated deadline. The IRS also sometimes mistakenly treated forms that were not reporting Box 7 payments as late returns.
The 1099-NEC form is intended to help avoid the confusion by separating the nonemployee compensation payments on its own form. Box 7 on the 1099-MISC form will now be reported in Box 1 of the 1099-NEC form. The information on 1099 filings should include payments made that meet all four of these conditions:
1. It is made to someone who is not your employee
2. The payment relates to services in the course of your trade or business
3. It is paid to an individual, partnership, estate or in some cases, corporations
4. The payments made to the payee totaled $600 or more in a calendar year.
Before filing 1099-NEC Forms, be sure the recipient’s Taxpayer Identification Number is correct to avoid IRS penalties. Form 1099 -MISC and 1099-NEC are frequently audited, which can result in large penalties to organizations. Companies should request a W-9 Form from each recipient prior to issuing payments so they have accurate information when it comes time to file 1099 forms.
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