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:
- You made the payment to someone who is not your employee.
- You made the payment for services rendered in the course of the trade or business (including government agencies and nonprofit organizations).
- You made the payment to an individual, a partnership, an estate or, in some cases, a corporation.
- 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:
- 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.
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 is the Firm Administrator at Kmetz, Elwell, Graham and Associates and a blog contributor in the accounting and HR industries.