There is no doubt that many changes have occurred over the course of the last few months. Add new and revised IRS forms to that list. The IRS recently released Form 1099-NEC to report non-employee compensation which has also led to a redesign of the familiar Form 1099-MISC used to report miscellaneous income. It is imperative that businesses become familiar with the new reporting requirements to remain IRS compliant.
The New Form 1099-NEC
The new Form 1099-NEC was created by the IRS to alleviate some of the compliance headaches that resulted from the Protecting Americans from Tax Hikes (PATH) Act of 2015. Beginning with the tax year 2020, businesses will be required to file Form 1099-NEC to report payments for services of $600 or more to non-employees. For example, amounts paid to independent contractors or attorneys for services provided will be reported on Line 1. (These were previously reported on Line 7 of the Form 1099-MISC.)
Backup withholding should be reported in Box 4 of the Form 1099-NEC. However, keep in mind that withholding is generally not required unless the recipient of the payment has not provided a taxpayer identification number.
Form 1099-NEC is generally due by January 31st. Because it falls on a weekend next year, the due date will be February 1st, 2021. There are no extensions unless the taxpayer can provide evidence of hardship.
The Redesigned Form 1099-MISC
As a result of the new form, the IRS has rearranged the boxes on the traditional Form 1099-MISC. So, it is important that you pay close attention when completing the form for 2020. Box 7, which was previously used to report non-employee compensation, has been replaced with “Payer made direct sales of $5,000 or more of consumer to a buyer (recipient) for resale”.
Additionally, you should be aware that gross proceeds paid to attorneys or law firms connected with a legal settlement are reported on Form 1099-MISC, Box 10. However, payments to an attorney or law firm for services provided to you are reported on Form 1099-NEC.
In order to familiarize yourself with the new reporting requirements for the 2020 tax year, we recommend that you carefully review the new Form 1099-NEC and Form 1099-MISC instructions.
As always, ATKG is here to help guide you through the compliance process should you have any questions.
Carlee Gibbs is a tax professional with ATKG. She first joined the firm as an intern in 2019. Carlee graduated in 2020 from Texas Lutheran University, with a Master of Accountancy and a minor in Information Systems.
For more further information on this topic or to discuss other tax concerns, please reach out to your trusted ATKG advisor at email@example.com or 210.733.6611.