Another new change is coming for the 2020 tax season. Nearly 70% of filers in 2019 who reported income in Box 7 (nonemployee compensation) of Form 1099-MISC will now be using the new Form 1099-NEC to report nonemployee compensation!
The IRS decided to make this change effective for the 2020 tax season because of the due dates involved. Form 1099-MISC’s with Box 7 (nonemployee compensation) information were due January 31st, while the others were due February 28th or March 31st if filing electronically. As you can see this made the process of filing this form a logistical nightmare, including having to deal with late filing notices from the IRS.
The 1099-NEC is used to report payments that a business made to someone who is not an employee of the company. If you are not sure if you need to file a 1099-NEC here are the requirements laid out by the IRS.
File Form 1099-NEC If you have paid at least $600 for:
- Services performed by someone who is not your employee
- Cash payments for fish (or other aquatic life) you purchase from anyone engaged in a trade or business
- Payments made to an attorney
- Or if you have withheld any federal income tax to someone who is not your employee as backup withholding
It is very important to file the 1099-NEC on time with the correct information this year since the IRS has stated they have eliminated the 30-day extension. Penalties for incorrect information reported can be as high as $280 per information and failure to correct the information form intentional disregard moves the penalty to at least $560 with no maximum. The due date for the 1099-NEC is February 1, 2021.
If you are worried about the fate of the 1099-MISC, don’t worry too much because the IRS has stated that all of the other usual information will still be reported on that form however, the boxes will be rearranged from previous years.
As always, do not hesitate to contact a Henry+Horne tax professional if you have any questions!