This is not a new form that has been introduced for the first time in the year 2020. This Form has been in use until 1982. It was from 1983, a consolidated form containing all the details such as Rent, Royalties, Non-Employee Compensation, Section 409A deferrals, etc., were reported on a single Form which we use till date – Form 1099 Misc.
Form 1099 – Misc. is like a W-2 but for independent contractors. This form is filed when payments of more than $600 are paid to independent contractors.
What is the need for the reintroduction of the Form 1099 – NEC?
The Protecting Americans from Tax Hikes (PATH) Act was introduced in the year 2015. One of the amendments in the Act was to advance the timelines of reporting of Non-Employee compensation from February 28 to January 31 of each year. This resulted in taxpayers filing multiple 1099 – Misc. forms. This move not only resulted in confusion for the taxpayers and employers, but the IRS is also in many cases mistook filings after January 31 as late returns.
The new Form 1099 – NEC is reintroduced to make reporting for Non-Employee Compensation clearer for the employers, Taxpayers, and the IRS.
When does the new Form 1099-NEC come into effect?
The new Form 1099 – NEC comes into effect from the year 2020. The due date of reporting Form 1099-NEC is on January 31, 2021. As of January 31, 2021, falls on a Sunday, the due date for all 2020 payments falls on February 1, 2021. Unlike the earlier Form 1099 – Misc, the due date of filing of this form remains on February 1, 2021, for all incomes that are reported on this form.
What are the compensations reported on Form 1099-NEC?
As per IRS Rules, if the following four conditions are met, the payment must be reported as an NEC (Non-Employee Compensation)
- Payment to a person who is not an employee
- Payment for services in the course of trade or business.
- Payment to an individual, partnership, estate, or a corporation
- Payments of an amount of $600 or more during the year
Normally a compensation in the nature of any of the following to Non-employee are to be reported in the new Form 1099 – NEC:
- Professional Charges
- Prizes and Awards
- Any other compensation for the services provided
Although this Form results in additional paperwork, it significantly reduces the confusion that is being caused. Presently, the Federal form has been introduced, and we will need to wait to see the individual states coming up with the laws. Whether a provision will be made on the new Form 1099 NEC or whether the old Form 1099 – Misc will continue to be used by the states? Only time will tell.
GKM can support you in the preparation for the new tax form.