During the 2020 tax year, significant changes were made to Form 1099 that will affect how to report nonemployee compensation and certain miscellaneous payments. Please review the important details below regarding the changes made to the 1099 forms, reporting responsibilities, and potential penalties.
About 1099-MISC and 1099-NEC
Starting with the year 2020, the 1099-MISC form has been split in two; there is now a 1099-MISC and a 1099-NEC. The IRS has resurrected Form 1099-NEC to report non-employee compensation, which until last year was reported on 1099-MISC Box 7.
Important Deadline Dates
Both the 1099-NEC and 1099-MISC must be mailed out to recipients by January 31, 2021. The 1099-NEC must be filed with the IRS by January 31, 2021 and the 1099-MISC by February 28, 2021.
We can help you prepare these files to avoid the penalties for late filing or incorrect information. Contact us no later than Friday, January 22, 2021, to begin the process. Due to the time required to prepare the forms and the volume of requests, we may be unable to assist clients without filing a 30-day extension.
Increased Penalties
In recent years, the IRS has substantially increased its scrutiny of 1099 reporting. With business income tax returns, and Schedules C and E of individual returns, the IRS now requires answers to the following questions, signed under penalties of perjury:
- Did the company make any payments that would require it to file Forms 1099?
- If “yes” did the company file or will file all required Forms 1099?
Penalties for failure to file or filing incorrect 1099 documents range from $50 to $560 per form, and up to a maximum of $1,130,500 for small businesses.
Reporting Requirements
Reportable threshold: Only payments for services made in course of a trade or business are reportable. This means individuals who, for example, pay for home maintenance or improvements, do not file 1099s for the contractors who performed the work. However, a business that pays for such work on the business property would issue a 1099.
Payment methods: Payments made by debit or credit card do not get reported. Such payments will instead be reported by the card processing companies on Forms 1099-K.
Payee types: Payments to tax-exempt organizations are exempt from these reporting requirements. In most but not all cases, payments made to corporations, or LLCs taxed as S-corporations, are exempt from these reporting requirements.
Rely on the Experts
Attached are reference tables for 1099-MISC 1099-NEC to help you identify and gather the information necessary for your 1099 reporting. Kindly note your information should include Form W-9s for each vendor. Throughout the year, the best practice with a W-9 is to obtain the form before paying a new vendor.
At The Hechtman Group, our experienced team of tax managers is well-versed in the preparation of 1099-NEC and 1099-MISC forms as well as any required tax preparation documents. These are not do-it-yourself forms for individuals or businesses without filing experience. Avoid the potential penalities assigned to late filings or incorrect forms. Contact us today and let us help.