1099 Deadline 2020 - New Form
The IRS has a new Income reporting form for nonemployee in 2020 called the 1099-NEC, which stands for Nonemployee Compensation. This form is replacing the 1099-MISC and has an earlier due date, than the previous calendar year's Form 1099 deadline 2020 for payments made during the last 4 quarters. The 1099-NEC has an earlier due date for businesses because it's going to solve issues created by the dual filing deadlines of the Form 1099-MISC. The new Form 1099-NEC is used by businesses to report 2020 payments to nonemployees and must be submitted to the IRS by February 1, 2021.
The 1099-NEC is also reported by the nonemployees themselves for the income they made during the tax year to the IRS. If you are a nonemployee, you need to use an online 1099 tax calculator to estimate how much you will owe on your 1099-NEC income.
Key Differences Between 1099-NEC and 1099-MISC
The IRS implemented the new Form 1099-NEC in 2020 for businesses to report payments of $600 or more to nonemployees such as independent contractors and freelancers who provide them with services. Previously, those payments had been reported on the Form 1099-MISC that was due February 28, but the forms needed to be filed a month early when they included payments to nonemployees for services.
In most tax years, the businesses would be required to either submit the paper filing or electronic filing of the new Form 1099-NEC return by January 31 of the year after the payments were made. But in 2021 January 31 falls on a Sunday, so the IRS is pushing the deadline to the next business day of February 1. This new deadline also applies for providing copies of the Form 1099-NEC to the workers who received the payments from your company. This helps them figure out how much to pay in 1099 income taxes before the annual individual deadline.
*Please note that this date of February 1st is subject to change due to COVID in 2021.
While they are no longer used to report payments to outside service providers, the IRS still uses a revised Form 1099-MISC to report some payments of at least $600 in a year to nonemployees. Copies of those forms must be distributed to the individuals who received payment in 2020 by February 1, 2021, but the businesses are not required to submit the forms to the IRS until March 1, 2021. The date is pushed back to February 28 for years when the date does not fall on a Sunday.
Why the New Form and Filing Date?
Until 2020, businesses reported their nonemployee compensation in Box 7 of the old Form 1099-MISC that needed to be filed by February 28 (March 31, if efiling) for the year after the payments were made. However, the 2015 Protecting Americans from Tax Hikes (PATH) Act required that amounts reported in Box 7 on January 31, for the year after the payments were made. The reporting deadline for most other instructions on the 1099-MISC did not change.
Federal Treasury regulations proposed in 2015 and finalized in 2018 explained that the filing date was moved up by a month to combat fraudulent refunds because of identity theft. The regulations said identity thieves will sometimes file fraudulent returns electronically that claim large refunds on behalf of unsuspecting taxpayers before those taxpayers can file their own returns. By moving up the filing deadline for some types of Form 1099 income, the IRS hoped to make it more difficult for those identity thieves to request fraudulent refunds before they have information on the taxpayer’s nonemployment compensation.
The different timelines for information on the same form created issues for some businesses using nonemployee workers because if a Form 1099-MISC that had an entry in Box 7 was submitted after January 31, it was considered a late filing and the business could be subject to a late filing penalty. To help solve this problem, the IRS introduced the new Form 1099-NEC for reporting nonemployee compensation. This form has been used before, but was retired by the IRS in 1982.
Who Files the Forms 1099?
While a copy B of the 1099 is mailed to the independent contractor or freelancer who received the payments, it is the responsibility of the business that made the payments to file the copy A of the form to the IRS by the deadline. The Forms-1099 are known as “informational returns” to inform the IRS that the payments were made and are not part of the business’s returns.
The Form 1099-NEC must be filed by any large or small business that pays a person more than $600 for one of the following:
- Services that were performed by a nonemployee
- Payments to an attorney for services
- Payments for fish or other aquatic life that was purchased by someone involved in the fishing trade.
The Form 1099-MISC was revised for the 2020 tax year. Part of this revision was the rearranging of the boxes, so workers who receive the forms must be careful when using information from the form to fill out their own taxes because the information may not be in the same place it was last year.
The Form 1099-MISC is used by businesses to report payments of at least $600 to a nonemployee during a tax year for the following purposes:
- Rent that was paid to the owner of a business or property
- Machine rentals
- Medical and health care
- Payments to health insurers
- Gross proceeds paid to an attorney for reasons other than legal services
- Prizes and awards
- Substitute payments made instead of interest or dividends
- Other income that was not reported elsewhere
If the reported payment was for substitute payments instead of dividends or interest or gross proceeds paid to an attorney, the deadline for sending copies of the Form 1099-MISC is pushed back to February 16.
The Filing Deadline for the 1099-NEC is Only Extended in Specific Circumstances
The IRS will grant an automatic 30-day extension to file Form 1099-MISC, but for an extension of time to file a Form 1099-NEC, the business must meet certain specific criteria that must be certified under penalty of perjury (this is why they extended the deadline in 2019). This means that if you are dishonest with the IRS knowingly, you could do jail time when filing for an extension request.
Valid reasons for an extension include the following:
- A catastrophic event in a federally declared disaster area made the filer unable to resume operations or made the records necessary for filing unavailable
- Fire, loss, or natural disaster affected the operations of the filing business
- A serious illness, death, or unavoidable absence of the individual who was responsible for filing the returns
- The filer is in its first year of operations
- The filer did not receive the necessary information from the nonemployee
If the filing business has suffered from one of the above-listed hardships, it will receive a 30-day automatic filing extension after filing an IRS Form 8809, which is an Application for Extension of Time to File Information Returns.
Reporting Form 1099-NEC Income on Your Individual Return
Depending on your classification as a nonemployee or employee you will get Forms W-2, Wage and Tax Statement or a 1099-NEC. Either way, you must report both your nonemployee and employee income on your federal income tax return if applicable. Remember, if the payment was reported on a Form 1099, the IRS will know about it, so government will know if you leave it off your personal returns. You still have to report income if you didn't get a 1099.
Box 1 of the New Form 1099-NEC will show any nonemployee compensation you have earned. If that amount is self-employment or sole proprietor income, it should be reported on Form 1040 Schedule C, Profit or Loss from Business. If you earned the income as a member of a partnership, the income would be reported on your Form 1065, U.S. Return of Partnership Income, and Form 1065 Schedule K-1, Partner’s Share of Income, Deductions, Credits, etc.
Form 1099-NEC Information Not Reported to States
Under the IRS 1099 Combined Federal/State Filing Program (CF/SF), information that was provided on the federal tax Form 1099-MISC was forwarded to participating states. However, the IRS has said that information will not be included in the CF/SF program and that businesses will need to report that information to states separately.
Understanding the new 1099-NEC deadline for payments made in 2020 may feel like a burden. The United States Internal Revenue Service deserves your respect, but does not need to be feared. There are many different 1099 forms with different due dates. Here is a breakdown of when 1099 forms are due.
The good news is the new 1099-NEC is going to simplify nonemployee compensation because we won't have to worry about the dual deadlines of the tax filing form 1099-MISC. The 1099-NEC ensures that we have the same one deadline for when we efile or submit them by mail.
The new filing date will generally be January 31st or the next applicable business day if it lands on a weekend, in the future. The filing date for the 1099-NEC in 2021 is February 1st. For more information on the 1099-NEC, check out the official IRS website, www.IRS.gov.