With Box 7 eliminated from Form 1099-MISC, the new Form 1099-NEC is where businesses have to report nonemployee compensations.
As the New Year is approaching faster than ever, businesses are preparing for a less-challenging 2021 by gathering all the information needed to e-file Form 1099-NEC for the tax year 2020-2021.
Earlier this year, the IRS announced that there have been some changes made to Form 1099-MISC in light of protecting employed workers who are being misclassified as “independent contractors”.
That’s right. There are some businesses, especially in the healthcare industry that have been misclassifying their employed workers as independent contractors.
Now you may wonder how these businesses would benefit from misclassifying their employees.
You see, by misclassifying employed workers as independent contractors, these companies are denying them employee benefits such as workers’ compensation, health insurance, and more. This is a mean-spirited tactic used by businesses to cut down on taxes.
You can learn in detail about the reality of how misclassification is affecting hundreds of employed American workers here.
So, to protect the interests of employed workers and to closely monitor the nonemployee compensation reports accurately, the IRS has eliminated Box 7 of Form 1099-MISC and replaced it by (re)-introducing a 40-year-old form called ‘Form 1099-NEC’. Of course, the form has been updated to add consensus to the current state of tax affairs.
So, businesses have to use Form 1099-NEC to report all nonemployee compensations (NEC) to the IRS starting this tax year 2020-2021. Check out the new Form 1099-NEC by downloading the PDF version here.
Please note that the print version of this PDF will not be valid because it does not support scanning procedures specified by the IRS. You can order the original forms from the IRS here and the IRS will send the forms straight to your email inbox.
Box 7 of Form 1099-MISC
Previously, Box 7 of the 1099-MISC was used by businesses to report any compensations or payments made to independent contractors or vendors.
Now, you have to note that these independent contractors or vendors are in no way the employees of the company. They are just being compensated for the services utilized.
If a business made a payment or compensated a contractor or vendor for their services, and the amount is at least $600 in total, then such nonemployee compensations have to be reported in Box 7 of Form 1099-MISC.
But not anymore.
Replacing Box 7 with Form 1099-NEC
Starting from the tax year 2020-2021, business taxpayers will have to report all their non-employee compensations on the new Form 1099-NEC.
If you are a self-employed contractor or a freelancer, expect to receive a copy of the Form 1099-NEC from businesses that paid you for utilizing your services.
If you are a business that paid a vendor or an independent contractor or a freelancer or any other individual who in no way constitutes as your employed worker, then you have to send a copy of the Form 1099-NEC to them.
This way, the IRS gets to keep tabs on businesses that are misclassifying their employed workers as ‘nonemployee workers’ and evading taxes.
Please note that if the independent contractor is a ‘C’ or ‘S’ corporation, the business that paid to such corporation need not file Form 1099-NEC.
Bonus Note: The independent contractor or vendor or nonemployee worker in the subject is not responsible for filing the Form 1099-NEC (but the payer is).
Due Date to File Form 1099-NEC in 2020-2021
All businesses are required to file Forms 1099-NEC to the IRS on or by the 31st of January 2021. As the 30th and 31st of January 2021 fall on a weekend, the due date is postponed to the 1st of February 2021.
Please note that the 30-day automatic extension for filing forms (including NEC) has been eliminated by the IRS according to the PATHS Act. Learn more about the reform straight from the IRS here.
Important Boxes in Form 1099-NEC
Form 1099-NEC is relatively small with just 7 boxes in total. SO, you (The filer) are required to enter your and your recipient’s TIN, along with your address details, and other general information.
The key boxes ask the filer to report information as follows:
Box 1: Paying someone (who is not your employee) for utilizing their services (including parts and materials).
Box 2: Payer made direct sales totaling $5,000 or more of consumer products to the recipient for resale.
Box 3: Reserved.
Box 4: Businesses have to report for each person from whom they have withheld federal income tax (regardless of the amount of payment).
Combined Federal/State Filing Program (CF/SF) Not Applicable for Form 1099-NEC
Please note that e-filings will not be forwarded to the states as the deadlines may vary for certain states. Previously, the Combined Federal/State Filing Program (CF/SF) allowed businesses to forward the e-files to the states for compliance. But with the introduction of Form 1099-NEC, this may not be possible.
However, you can always rely on Tax1099’s all state-compliant e-filing platform, which allows you to e-file all your 1099-NEC and other forms effortlessly in just 3 easy steps.
Tax1099 is an IRS-authorized e-filing platform trusted by 150,000+ businesses globally. A two-time ‘Accountex User Favorite’ award winner, Tax1099 provides state and federal compliant forms to businesses of all sizes and types.
You can start by creating your free account here and e-file your forms. What’s more? Tax1099 is integrated with accounting and data management tools, such as Quick Books, Zoho Books, Bill.com, and many more dynamic integrations to make your bulk e-filings a breeze.
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