There have been so many changes during 2020, and the IRS is giving us one more. The Form 1099-NEC is being reintroduced for the 2020 tax year. This form should be used to report the nonemployee compensation.
With a year full of changes to tax forms, adding this into the mix has many business owners feeling a bit confused. So, we are going into detail about the Form 1099 NEC to clear up any of these misgivings.
What is the Form 1099-NEC?
This is an IRS tax form that is now used by the IRS to report nonemployee compensation. Non-employee compensation is defined as any payments made to independent contractors, free-lancers, or any other non-employee that is performing services for the business.
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 1099-MISC for nonemployee compensation to recipients by January 31.
As you may know, nonemployee compensation has been reported in box 7 of the 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 the Form 1099 NEC in order to clear up any confusion.
What information should be reported on 1099-NEC?
If you have made a payment of $600 or more to any person or business organization that isn’t included on your payroll, you are required to file the Form 1099-NEC.
If you made the payment, then you are the payer, and the independent contractor or vendor that you paid is the recipient. This following information is needed to complete this tax form.
You will also need the details regarding the nonemployee compensation and the federal income tax withheld.
That is the basic information you will need to have available to begin the form, to complete the form you will need to enter information related to the payment made. Be sure to report any fees or commissions, or awards made.
What needs to be reported on the 1099-MISC for 2020?
So, if you no longer need to report nonemployee compensation on the Form 1099-MISC, what should you report on this form? Great question! This form should still be filed to report many different types of miscellaneous income. For example any rents, royalties, or payments made in lue of interest should be reported on the Form 1099-MISC.
If you want to report nonemployee compensation for the prior tax year, then you’ll need to use a prior year Form 1099-MISC.
Does TaxBandits support the 1099-NEC?
Yes! Not only does TaxBandits support the Form 1099-MISC, but we also support the Form 1099-NEC. The deadline to file the Form 1099-NEC is February 1,2021, so this is a form that will become part of your year-end tax filing obligations.
With TaxBandits the filing process is simple and straightforward. Our inbuilt audit checks ensure that you fix any errors before transmitting your return to the IRS. Do you need a print and mail solution? TaxBandits can handle your recipient copies! Need to e-file your W2s as well? Stock up on prepaid credits to lock in your best pricing.
Want more information to help you file Form 1099-NEC with TaxBandits? Check out this video!