If you are a contractor, vendor, freelancer, or other non-employee service receiving payment from a business, there are some changes coming in 2020 for handling your 1099 taxes. You would have been issued and a Form 1099 in the beginning of the following year.
The 1099 form is used to report miscellaneous income to the Internal Revenue Service, such as non-employee compensation, rents, royalties, prizes and awards, payments to an attorney, certain medical and health care payments, and more.
The IRS has introduced a new Form 1099 for 2020, Form 1099-NEC. More specifically, the IRS has split the Form 1099 into two separate forms: Form 1099-NEC (for non-employee compensation) and Form 1099-MISC (for other miscellaneous service payments). In prior years before the Protecting Americans from Tax Hikes Act or PATH Act, payers could file one Form 1099-MISC to report non-employee compensation and miscellaneous income items by February 28th each year. The PATH Act changed the Form 1099-MISC due date to January 31 for reporting non-employee compensation.
With the year-end coming, you should be up to date with all the 1099 changes for 2020.
The new form 1099-NEC
Beginning in 2020, business taxpayers receiving payments of $600 or more for non-employee compensation will receive a Form 1099-NEC by February 1, 2021. This replaces the non-employee compensation payment reporting on Form 1099-MISC for more than 30 years. The 1099-MISC will continue to be used for other types of payments typically reportable on Form 1099-MISC. All businesses now must issue and file a Form 1099-NEC for non-employee compensation if all of the following conditions are satisfied:
- You made the payment to someone who is not your employee
- You made the payment for services in the course of your trade of business, not products
- You made the payment to an individual, partnership, or other unincorporated entity (payments made to a corporation including an LLC treated as a C or S corporation generally do not need to be reported except for payments to attorneys that are corporations)
- The payments made to the payee were at least $600 or more for the year
If federal withholding exists on any non-employee compensation payments made to a recipient, you must prepare a Form 1099-NEC to report it even though payments were less than $600.
For the 2020 tax year, Form 1099-NEC is due to the IRS on Monday, February 1, 2021. Copies of Form 1099-NEC are due to recipient individuals or small businesses by February 1, 2021 as well.
Form 1099-NEC can be either filed electronically or mailed to the IRS. To e-file Form 1099-NEC, please use the IRS’s Fire System. Where you mail your Form 1099-NEC depends on your state.
Alabama, Arizona, Arkansas, Delaware, Florida, Georgia, Kentucky, Maine, Massachusetts, Mississippi, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Texas, Vermont, Virginia
Department of the Treasury Internal Revenue Service Center Austin, TX 73301
Alaska, Colorado, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, North Dakota, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Utah, Washington, Wisconsin, Wyoming
Department of the Treasury Internal Revenue Service Center P.O. Box 219256 Kansas City, MO 64121-9256
California, Connecticut, District of Columbia, Louisiana, Maryland, Pennsylvania, Rhode Island, West Virginia
Department of the Treasury Internal Revenue Service Center Ogden, UT 84201
Miscellaneous payments other than non-employee compensation should still be reported on Form 1099-MISC. This includes:
Payments of at least $600 in...
- Prizes and awards
- Fishing boat proceeds
- Certain medical and health care payments
- Crop insurance proceeds
- Section 409A deferrals
- Cash paid from a notional principal contract to an individual, partnership, or estate
- Other income payments
Again, if federal withholding exists on any payments made to a recipient, you must prepare a Form 1099-MISC to report it even though payments were less than $600 in a calendar year.
The 2020 Form 1099-MISC is due to the recipient by February 1, 2021 and due to the IRS by March 1, 2021 (for paper filing) pr March 31, 2021 (for electronic filing).
Tips for accurate form 1099 reporting
A Form W-9 is used to obtain your contractor’s information such as name, address, tax identification number (e.g. social security number, employer identification number) so that a Form 1099 can be issued. You need to ensure that a Form W-9 is on record for every recipient of a payment. Additionally, having accurate information upfront will prevent you from amending the 1099 forms due to incorrect or incomplete information. If the W-9 is not received by the time of any payment, 24% for backup withholding must be deducted.
Penalties for missing the filing due date
If you don’t turn in your Form 1099 to the IRS by the filing deadline, you will pay a penalty depending on how late the payment is. These filer penalties are:
- $50 if you file within 30 days
- $100 if you file more than 30 days late, but before August 1
- $260 if you file on or after August 1
The amount will be determined based on when you file the correct information return. If you are unable to file on time, you can request an extension by submitting Form 8809 to the IRS. However, you will still need to provide the 1099-NEC forms to any contractors by January 31.
Submitting 1099s to your state
You’re required to file 1099 forms with some states. The following states do not require 1099 forms to be submitted:
- New Hampshire
- New York
- South Dakota
Check with your tax professional to make sure you are compliant with any of your state’s 1099 filing requirements.
In the prior years, you either issued or received a Form 1099-MISC if your business hired contracted work or if you were a freelancer. Starting in 2020, the new Form 1099-NEC has been introduced to only report non-employee compensation income. The due date to file Copy A of Form 1099-NEC with the IRS is January 31 of the following year. If this date does not fall on a business day, the deadline will be the next business day. Similarly, the due date to provide Copy B of Form 1099-NEC to contractors is January 31 of the following year. Some states require you to also file 1099-NEC with the state. There is a penalty if you missed the deadline and it depends on how late the payment is.
Remember, the Form 1099 is one of the IRS’s most powerful system in fighting underreporting by independent contractors. Form 1099 filing non-compliance and mistakes can be very costly and you and your business can get in trouble. Contact a CPA or professional services for any questions or advice if you are concerned with State tax or other tax compliance issues.
For detailed instructions for both 1099-NEC and 1099-MISC forms, see “instructions for Forms 1099-MISC and 1099-NEC (2020)” on the IRS.gov site.
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