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The IRS continues to adjust how forms work for upcoming tax filings. A recent change to the 1099-MISC is causing confusion for business owners and tax professionals across the nation.
Not to worry, GO2 Partners is here for you. We’ll cover who this change will impact, what you need to know, and how we can help.
Changes to the 1099-MISC Form
In 2015, the Protecting Americans from Tax Hikes Act (the PATH Act) moved the due date for form 1099-MISC that included nonemployee compensation (Box 7) from February 28 to January 31.
This has created issues for the IRS. Computers were unable to apply different due dates to a single form. While much of the tax process could be automated, the IRS struggled to efficiently manage the 1099-MISC. If an employer submitted a batch of 1099-MISC forms after the January deadline, some without nonemployee compensation, then all the forms might mistakenly be considered late, and the business would receive a fine.
Sliding due dates depending on Box 7 was not only a problem for the business receiving the fine and for the IRS, who struggled to manage the deadlines, it also became a fraud issue. Businesses could move compensation to utilize the later deadline.
To solve the problem, the IRS has reinstated a form that has been out of use since 1982, the 1099-NEC. Nonemployee compensation has been removed and the box numbers have been adjusted for reporting miscellaneous compensation on the 1099-MISC form.
Using the 1099-NEC Form
To eliminate the confusion, the updated 1099-NEC form now covers nonemployee compensation, which used to be part of the 1099-MISC form.
While the IRS may be resurrecting a form from the past, not everything is the same. Beyond the bad hair and roller skates of the ’80s, the rules around nonemployee compensation are more complex today. Businesses and tax professionals need to be aware of the changes.
Who Should Use the 1099-NEC Form?
According to recent guidance from the IRS, 70% of all 1099-MISC filings will require form 1099-NEC, which covers nonemployee compensation. Today, the IRS describes payment reportable on the 1099-NEC as:
- Payments made to an entity who is not an employee.
- Payments made as part of your trade or business.
- Payments made to an individual, estate, partnership, or (occasionally) a corporation.
- Payments made are more than $600 in a calendar year.
For example, this could include vendors, consultants, freelance professionals and independent contractors — self-employed individuals who are often referred to as 1099 workers. Professional service fees and payments for materials used in incidental services are also covered by the 1099-NEC.
Additional Guidelines for the 1099-NEC
The 1099-NEC should not be used to report:
- Payments to tax-exempt organizations.
- Payments for phone, communication (like telegrams), merchandise, freight or storage.
- Personal payments.
- Employee wages (these would be reported on the W-2 form).
- Gross proceeds to an attorney (these would be reported on the 1099-MISC form).
- Payments to property managers or real estate agents (again, these would be reported on the 1099-MISC form).
Filing Instructions for 1099-NEC
Both contractors and the employers affected by the new 1099-NEC will need to submit the form. Keep in mind, the new 1099-NEC form also asks for additional non-identifying information, such as the FACTA filing requirement, and any federal income tax withheld.
As a business owner, you will need to distribute the 1099-NEC form by January 31. This would include a copy to the recipient and to the IRS.
The 1099-NEC can be submitted to the IRS via a paper or electronic filing (e-file). The Taxpayers First Act requires businesses submitting more than 100 forms to e-file, though this may be adjusted to 250 during the COVID-19 crisis.
Getting Started with the Updated 1099-NEC IRS Form
With the late guidance on the new forms, many businesses may be under pressure to adjust to the changes.
GO2 Partners currently has the 1099-NEC form in stock and ready to ship. This includes both laser cut sheets and pressure seal forms. We can also assist if you need forms printed, mailed, and/or e-filed.
For 25 years, our team has been helping businesses with mission-critical tasks like managing changes to IRS forms. As a one-stop shop for your printing needs, GO2 experts can take the pressure off your internal team and ensure work is done right the first time.
Contact GO2 today using the form below if you have questions. We’re here to help.
