2020 is a year that has brought about a lot of changes and they just keeping coming. Beginning this year, the IRS has split the 1099 tax form into two separate forms: Form 1099-NEC and Form 1099-MISC (because we all needed another tax form added to the list). Let’s break down the differences, as outlined on the IRS website, so that you can be prepared for the upcoming tax season:
This form is for reporting N
(ompensation). If your organization has paid out at least $600 or more in compensation for services to a nonemployee (such as an independent contractor), in fees or in commissions, then you may be required to file a 1099-NEC form. There are four conditions, outlined by the IRS, that constitute the filing of a 1099-NEC. If you meet the following conditions, then you should be prepared to file this new form during this upcoming tax season. The form will be due to the IRS, as well as the recipient, by February 1, 2021.
1. You made the payment(s) to a nonemployee
2. You made the payment(s) for services (not merchandise or other)
3. You made the payment(s) to an individual, partnership or other unincorporated entity
4. You made the payment(s) to a recipient totaling at least $600 or more during the tax year
Remember, if payment(s) for these conditions do not total at least $600, you generally do not need to file a Form 1099-NEC.
This form is aimed at all other miscellaneous service payments (OTHER than nonemployee compensation). The IRS outlines the following conditions, which indicate that payments should be reported on the Form 1099-MISC:
1. Payments of at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest
2. Payments of at least $600 or more in the following categories:
b. Prizes and awards
c. Other income payments
d. Cash paid from a notional principal contract to an individual, partnership, or estate
e. Fishing boat proceeds
f. Certain medical and health care payments
g. Crop insurance proceeds
h. Payments to an attorney (other than fees for services)
i. Section 409A deferrals
j. Nonqualified deferred compensation
The Form 1099-MISC is also due to the recipient by February 1, 2021 but not due to the IRS until March 1, 2021 (for paper filing) or March 31, 2021 (for electronic filing).
It’s important to make sure you are aware of these changes, in order to ensure correct filing of your organization’s 2020 tax documents. Be sure to request a W-9 from your independent contractors and service providers ahead of tax season. You may even request this form upon hiring them for work. This will ensure that you have all their necessary tax information in case you need to file a 1099 for their services. Pay attention to all filing deadlines and reporting requirements for this new form change.