New IRS Form 1099-NEC for Nonemployee Compensation

17 Nov New IRS Form 1099-NEC for Nonemployee Compensation

The IRS has launched a new form for independent contractors, vendors, freelancers and consultants that business taxpayers need to be aware of. Previously, businesses used the Form 1099-MISC to report compensation to these individuals. Beginning this tax year 2020, businesses will be required to use the new Form 1099-NEC (nonemployee compensation). Listed are the four conditions in which your business must report a payment as nonemployee compensation:

1. You made the payment to someone who is not your employee.
2. You made the payment for services rendered in the course of the trade or business (including government agencies and nonprofit organizations).
3. You made the payment to an individual, a partnership, an estate or, in some cases, a corporation.
4. You made payments to the payee of at least $600 during the year.

You will also need to file Form 1099-NEC for anyone from whom you withheld federal income tax under backup withholding rules for any amount, even if it’s less than $600.

Another change is that employers are required to provide the Form 1099-NEC to the payee and file with the IRS by January 31 (February 1 in 2021 since 31 falls on a Sunday).

Form 1099-MISC should still be used for each person that your trade or business paid the following to:

• At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
• At least $600 in the following:
  • Rents
  • Prizes and awards
  • Other income payments
  • Generally, the cash from a notional principal contract to an individual, a partnership or an estate
  • Any fishing boat proceeds
  • Medical and health care payments
  • Crop insurance proceeds
  • Payments to an attorney
  • Section 409A deferrals
  • Nonqualified deferred compensation

Employers must furnish the Form 1099-MISC to the recipient by January 31 and file with the IRS by February 28 (March 31 if filing electronically). For 2021, the due dates are February 1 to the recipient and March 1 to the IRS.

Need assistance?

If you have questions about filing Form 1099-NEC or any tax forms, contact us. We can assist you in staying in compliance with all rules.
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Messina Shields
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Messina is the Firm Administrator at Kmetz, Elwell, Graham and Associates and a blog contributor in the accounting and HR industries.