The PATH Act (Protecting Americans from Tax Hikes Act) required that payments for services in 2017 be reported on Form 1099-MISC by January 31 of the following year. However, if a payor was only reporting payments other than nonemployee compensation, they had until March 31 of the following year to file Form 1099-MISC with the IRS. To alleviate confusion about the due date of the Form, the IRS released a new Form – Form 1099-NEC – to be used for reporting nonemployee compensation payments. 2020 is the first year for using Form 1099-NEC.
Who Requires Form 1099-NEC?
If your business paid an independent contractor more than $600 in a tax year, you are required to file Form 1099-NEC. But if the contractor is a registered C-Corporation or S-Corporation, a 1099-NEC will not be required. This information can be found on the contractor’s Form W-9. Do not file a 1099-NEC for an employee. A W-2 is submitted to report wages, tips and other compensation paid to employees. There are significant potential penalties for treating employees as contractors.
Who Requires Form 1099-MISC?
If your business paid an individual or Limited Liability Corporation (LLC) at least $600 during the year in rent, legal settlements or prizes and awards, you are required to file a Form 1099-MISC. The 2020 Form 1099-MISC added a box for nonqualified deferred compensation and removed §409A income. Nonqualified deferred compensation is income includible under §409A since the nonqualified deferred compensation plan failed to satisfy the requirements of 409A. Amounts considered to be subject to substantial risk of forfeiture for purposes of §409A income should not be included in the box. Other Form changes include rearrangement of box numbers for reporting certain types of income.
Form Due Dates
Form 1099-NEC is required to be filed with the Internal Revenue Service (IRS) on or before February 1, 2021 – using either paper or electronic procedures. File Form 1099-MISC with the IRS by March 1, 2021 if you file on paper, or by March 31, 2021 if you file electronically. Copies should be sent to payees for each Form by February 1, 2021, but there is an exception; Form 1099-MISC with amounts on line 8 (Substitute payments in lieu of dividends or interest) or line 10 (Gross proceeds paid to an attorney) are due on February 16, 2021 to payees. Copy A of Form 1099-NEC should be submitted to the IRS and Copy B should be submitted to the payee.
Lewis A. Chabot, CPA | Tax Manager