Effective for the 2020 tax year, newly enacted laws has directed businesses to report independent contractors and non-employee compensation on form 1099-NEC. The filing of the 1099-NEC form does not replace the filing requirement of the 1099-MISC. The simple change is that reporting details about the payments to independent contractors and non-employees are added in 1099-NEC and removed from the requirements of filing 1099-MISC.
The additional filing requirements of 1099-NEC have increased the requirements on small businesses to report payments relating to non-employees or independent contractors independently from the 1099-MISC. All original reporting requirements related to the 1099-MISC such as rent or payments to attorneys are still reported on that form at the end of 2020.
Who needs to file the 1099-NEC form?
If your business is making payments of more than $600 during the year to an independent contractor, you will need to report that amount by filing form 1099-NEC. The payment may be on account of the professional services obtained from an independent contractor.
- 1099-NEC will not be filed if an independent contractor is registered as S-corporation or C-corporation.
- 1099-NEC must be filed irrespective of payment threshold if they withhold federal income tax under the backup withholding rules.
How can I file a 1099-NEC form?
Like many forms, the 1099-NEC can be completed electronically through popular softwares such as Intuit Quickbooks Online or independent software providers such as Tax1099.com or Track1099.com. Many other softwares have this function built in as well.
The federal government requires that two copies of the same information are filed for 1099-NEC. Copy-A is sent to IRS while copy B is sent directly to the independent contractor or non-employee. The forms are duplicates of each other and will contain identical information such as name, tax ID or social security number, address, and legal name of the operating business entity.
What will I need to complete the 1099-NEC form?
You will need some basic information about independent contractors such as legal name or business name, business address, nature of the entity (c-corporation, s-coporation, sole proprietor, partnership firm), and Taxpayer ID number or social security number.
How can I get the information required to file 1099-NEC?
The best way to obtain the information is by using the IRS W-9 form. This form will help you collect basic tax information about independent contractors such as taxpayer information (TIN) number as well as name, address, email, and other info you will need to send their copy of the form.
What if an independent contractor refuses to provide a W-9 form?
If they won’t provide basic tax information, you are required by law to withhold 25% of the payment owed to them and submit it to IRS as a holdback until the independent contractor submits their tax return. For that reason, it’s always advisable to obtain the W-9 form prior to any payments to the vendor being made.
If the vendor refuses to comply and payments have already been made in full, it won’t be possible to submit the legally required holdback to the IRS. And it can be a challenge to obtain the W-9 form without the payment as leverage.
What is the deadline for filing 1099-NEC?
The last day for the submission of your 2020 tax year 1099-NEC is January 31, 2021. However, since January 31 does fall on a Sunday in 2021, the following Monday will be the last date to file electronically or have your documents postmarked.
Be cautious waiting until the last minute for the 1099-NEC filing. Because this is the first year the new forms are required, some snags in the process are to be expected. Online submission systems are often congested on the final days of filing. Couple that with the current COVID-19 Pandemic causing labor shortages and additional restrictions with the IRS and last minute questions are unlikely to be answered quickly.
From where can I get 1099-NEC?
The form can be accessed on the official website of the IRS. Copy A will need to be filed with the IRS, while copy B is sent to the independent contractor.
What if I am still confused about the new change?
Due care needs to be exercised in filing tax forms and returns. Failing to file by the January 31st, 2021 deadline or misfiled forms along with other issues in statutory reporting may result in penalties from the IRS. If you are not sure about updates in the filing process of NEC-1099, we recommend seeking professional advice to avoid the hustles of the changes in filing requirements. Please note we can handle the statutory requirements of your business including filing tax forms, filing tax returns, tax planning, tax mitigation, corporate taxation, personal taxation and indirect taxes.
We also offer professional accounting and related services including business advisory, risk advisory, corporate finance and financial reporting.