The year is wrapping up and we can’t say that we’ll be sad to see 2020 go! However, before you begin planning your virtual Christmas parties, let’s talk about your end-of-year reporting with the IRS.
You may have hired independent contractors throughout the year, if so you will need to file a Form 1099 for them, while you may be used to filing the Form 1099-MISC for non employee compensation, this will no longer be the case.
Here is some helpful information to help you determine when you should file the 1099-NEC and when you should stick to the 1099-MISC.
Why did the IRS create Form 1099-NEC?
The PATH Act, or Protecting Americans from Tax Hikes has been responsible for many changes to IRS tax filing. This Act requires that employers provide the 1099-MISC for nonemployee compensation to recipients by January 31.
As you may know, nonemployee compensation has been reported in box 7 of Form 1099- MISC in the past. This created some confusion because the deadline to report nonemployee compensation is different from the deadlines to report other miscellaneous income. The IRS released Form 1099 NEC in order to clear up any confusion.
This specifically reports payments of over $600 made to an independent contractor or freelance worker.
What is the deadline for filing Form 1099-NEC?
The deadline to file Form 1099-NEC is January 31. Since the 31st of January falls on a weekend this year, your deadline to file is actually February 1, 2021.
Remember, employers are also required to distribute copies of Form 1099-NEC to recipients by January 31, 2021. It is crucial that your recipients receive their copy of 1099-NEC because they will use this to report their income on their personal taxes.
When should you use the Form 1099-MISC?
Just because this form is no longer used to report non employee compensation, doesn’t mean that it isn’t necessary for many businesses to file. There are many other situations that call for the filing of the Form 1099-MISC, according to the IRS, here are the most common:
Royalties or broker payments in lieu of dividends exceeding $10.
Awards or prizes
Medical and healthcare payments
Fishing boat proceeds
Payments made to attorneys
Crop insurance proceeds
What is the deadline to file Form 1099-MISC?
The deadline to distribute recipient copies is February 1, 2021.
The deadline to paper file the Form 1099-MISC with the IRS is March 1, 2021.