If you have a business with independent contractors, it is important to be aware of a recent reporting change that the IRS has implemented. Starting with the 2020 tax year, businesses must report nonemployee compensation (NEC) on Form 1099-NEC instead of Form 1099-MISC.
Although Form 1099-NEC is not a new form, it hasn’t been used by IRS since 1982. It was brought back to minimizing deadline confusion. Since the 1099-MISC is used to report other payments in addition to independent contractors payments, those other payments often had different filing deadlines. The 1099-NEC has one single filing deadline of January 31st.
If you pay a nonemployee $600 or more for services provided in your business during the year, you must report that on Form 1099-NEC and provide a copy to the recipient so it can be reported on his or her individual tax return. The tax treatment for recipients is the same as if they received a 1099-MISC.
What does this all mean for the 1099-MISC? The form has not gone away, but it will no longer be used to report nonemployee compensation. It is still applicable for reporting various other types of payments, including royalties, rents, prizes and awards, medical and health care payments, gross proceeds to attorneys from lawsuits, and other items.
A penalty can be assessed if you fail to provide a 1099-NEC to a qualifying recipient. There is also a penalty if you use the wrong form, e.g., 1099-MISC when a 1099-NEC should have been filed. If the wrong form is filed, you can void it as soon as possible by filing an amended statement showing $0 for nonemployee compensation on the 1099-MISC, and then filing the 1099-NEC. The longer it takes to correct it, the higher the IRS penalty could be.
Another impact of this change is that businesses in Oregon will need to file the 1099-NEC separately with the state as well as the IRS. The deadline to file with Oregon and IRS is January 31st.
If you need help complying with the new 1099-NEC guidelines, feel free to contact us any time.
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