Big Changes to 1099 Forms in 2020: Are You Prepared?

As we approach the end of 2020, it is time to start thinking about 1099 filings.  As if the task where not tedious enough, the IRS has introduced a new Form 1099-NEC Nonemployee Compensation.  It is important to note that this new form was designed to report all nonemployee compensation, which was previously reported on box 7 of Form 1099-MISC Miscellaneous Income. 

So what do you need to know?

• Form 1099-MISC will be continued to be used to report payments of $600 or more that are made in the course of your trade or business for anything other than nonemployee compensation. So for example, payments of rent will continue to be reported on box 1 of Form 1099-MISC
• Form 1099-NEC will now be used to report payments of $600 or more that are made in the course of your trade or business for services rendered from anyone who is not an employee (this includes parts and material).

Who gets a 1099-NEC?

The requirements for determining who gets a 1099-NEC remain the same as they were in prior years when determining who received a 1099-MISC.  

• Payments made to vendors/independent contractors of $600 or more for services such as legal and professional fees, advertising, maintenance, repairs, commissions, etc. must be reported on the new Form 1099-NEC.
• This includes payments made to individuals, partnerships or LLCs and, in some cases, even corporations.
• The most common instance where a corporation is required to receive a 1099-NEC is for legal services. All payments made to attorneys of $600 or more are reported on 1099-NEC regardless of whether they are a corporation or not.
• It is also important to note that if federal income tax was withheld from any vendor or independent contractor, they will also receive a 1099-NEC, regardless of the amount.

What are some exceptions?

• Generally, payments to a corporation (including an LLC that is treated as a C or S corporation) do not get a 1099.
• Payments for merchandise, telegrams, telephone, utilities, freight, storage, subscriptions and similar items.
• Payments to a tax-exempt organization under IRC Sec. 501(a) or federal or state government.
• Payments under the reporting thresholds.
• Payments made with a credit card or payment card and certain other types of payments, including third-party network transactions. (These payments are reported on Form 1099-K by the payment settlement entity.)

When do you file?

• Form 1099-NEC and Form 1099-MISC are due to the recipient by January 31 of the following year. Since this date falls on a Sunday in 2021, the due date will then be February 1, 2021 (with the exception of a 1099-MISC with amounts reported on box 8 or 10, which is due to recipients February 16, 2021).
• Form 1099-NEC must be filed with the IRS by February 1, 2021.
• Form 1099-MISC must be filed with the IRS by March 1, 2021 if paper filing or March 31, 2021 if electronically filing.
• You must file electronically if you are filing 250 or more of the same type of form.

So what should you do now?

• Always obtain a fully completed W-9 from your vendors prior to payment. This will provide you with:
  • Entity type to determine if a 1099 may be required.
  • Necessary information needed in order to complete the 1099.
• Review accounts payable and expense accounts to determine who will be receiving a 1099 this year.

• Be mindful of the due dates. You do not want to incur unnecessary penalties for late or incomplete filings.
• Be conservative. There are no penalties for filing 1099s when not required. “When in doubt, send one out.”