The IRS has, for years, used the 1099-MISC for all payments made to non-employees. In the 2021 tax year, they are making changes. The new IRS form 1099-NEC will be the new way to report non-employee compensation for payments made in 2020. Keep reading to learn more about what counts for the IRS form 1099-NEC.
When is form 1099-NEC necessary?
Business owners are required to use this form when their payments meet the following conditions:
- Payments are, in total, greater than or equal to $600 throughout the year (starting in 2020).
- The recipient is not an employee.
- The payment is made for a service or services in the course of your trade/business.
- Payments are made to an individual, partnership, estate, or possibly a corporation.
*you are required to file IRS form 1099-NEC for anyone you withheld federal income tax for any amount, even if it is less than $600.
How and when to file form 1099-NEC
You must deliver the IRS form 1099-NEC to non-employees no later than January 31st the year after the reporting year. This means that you must deliver forms by February 1st, 2021 (Jan. 31 is a Sunday). We highly suggest e-filing. Download the form here.
Changes to 1099-MISC
With this new form, the 1099-MISC will no longer have box 7 for non-employee payments. This box is now for reporting direct sales of $5,000 or more. Other changes to the form include:
- Crop insurance proceeds are reported in box 9.
- Gross proceeds to an attorney are reported in box 10.
- Section 409A deferrals are reported in box 12.
- Nonqualified deferred compensation income is reported in box 14.
- Boxes 15, 16, and 17 report state taxes withheld, state identification number, and amount of income earned in the state, respectively.
If you are unsure about whether you should file certain cases as a 1099-MISC or a 1099-NEC, consult this article by the IRS or contact us for more information! We’d be glad to make sure you file correctly and meet your deadlines.