Beginning in January of 2021, the IRS will require businesses to report non-employee compensation using a new Form 1099-NEC. Amounts formerly reported on Form 1099-MISC Box 7 will now be reported on the new Form 1099-NEC Box 1.
According to the IRS, 1099-NEC will be used strictly for reporting independent contractor compensation of at least $600 for the following:
- Services performed by someone who is not your employee (including parts and materials) (box 1);
- Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish (box 1); or
- Payments to an attorney for services he renders (box 1).
You must also file Form 1099-NEC for each person for whom you have withheld any federal income tax (report in box 4) under the backup withholding rules regardless of the amount of the payment.
Examples of services that should be reported on the 1099-NEC include those performed by independent contractors, consultants such as attorneys, accountants or architects, or gig-workers such as ride-share associates who are classified as independent contractors.
It is important to note that the IRS will not forward the 1099-NEC data to states. While the IRS Combined Federal/State Filing Program (CF/SF) will forward data from a number of key forms to the appropriate states, it will not do so for the 1099-NEC. Businesses will need to find alternative methods to file the form electronically with appropriate states in addition to the IRS filing.
Companies may want to work with their software vendors or internal IT departments to set up flags in their systems to separate the 1099-MISC from the 1099-NEC to make downloading and/or mapping of the information easier in January of 2021.
The 1099-NEC form is due to both the IRS and the recipient by February 1, 2021. The 1099-MISC will be due to the recipient by February 1st as well, but it is not due to the IRS until March 31, 2021 when e-filing.
For questions or additional information, contact a LaPorte Accounting Services professional.