If your company has or is planning to compensate nonemployees in 2020, there’s a new IRS tax form you need to know about.
Employers must now use Form 1099-NEC to report most nonemployee compensation. Form 1099-MISC hasn’t gone away. What’s changed are the circumstances where you would use the 1099-NEC or the 1099-MISC.
Let’s break down the basics.
Using Form 1099-NEC
- You made payments to the payee of at least $600 during the year.
- You made the payment to someone who is not your employee.
- You made the payment for services rendered in the course of your trade or business (including government agencies and nonprofit organizations).
- You made the payment to an individual, a partnership, an estate, or, in some cases, a corporation.
Important to note: Do not use Form 1099-NEC to report personal payments. It’s only to be used for payments if you are in a trade or business for profit.
- Fees paid by one professional to another (fee-splitting, for example)
- Payments to independent contractors
- Fees paid to professional service providers such as attorneys and accountants,
- Commissions paid to nonemployee salespersons that are subject to repayment but not repaid during the calendar year.
Deadline: Employers are required to furnish Form 1099-NEC or to the payee and file with the IRS by January 31. The forms can be submitted using paper or electronic filing.
Using Form 1099-MISC
Beginning with the tax year 2020, employers should file Form 1099-MISC for each entity to whom you have paid the following in the course of your business during the year:
- At least $10 in royalties or broker payments instead of dividends or tax-exempt interest
- At least $600 in the following:
- Prizes and awards
- Other income payments
- Generally, cash from a notional principal contract to an individual, a partnership, or an estate
- Any fishing boat proceeds
- Medical and health care payments
- Crop insurance proceeds
- Payments to an attorney
- Section 409A deferrals
- Nonqualified deferred compensation
Deadline: Employers must furnish the Form 1099-MISC to the recipient by January 31 and file with the IRS by February 28 (March 31 if filing electronically).
Additional details on both forms can be found here.
Bottom line: To be clear, your business may still need to use both forms. The 1099-NEC is used strictly for reporting independent contractor payments of $600 or more in the course of your trade or business. You will still be required to use the 1099-MISC for such items as royalties, rent, and healthcare payments.
If you have questions about using both or either, don’t hesitate to reach out. We can advise you on this and a host of other 2020 tax issues, including the Social Security payroll tax holiday, the tax implications of employees working from home, and businesses that received PPP Loans.