New for 2020 year-end reporting is the return of the 1099-NEC form. This form was last used in the early 1980s as essentially a single box to report non-employee compensations of $600 or more—thus, the abbreviation “NEC.”
With the reimplementation of the 1099-NEC for year-end reporting, payments of $600 or more made to independent contractors, attorneys (payments for legal services only, settlements are still reported in Box 10 of the 1099-MISC), and other non-W-2 employees will not be reported in Box 7 on Form 1099-MISC in 2020.
Reasons for Reinstating Form 1099-NEC
The purpose of reinstating Form 1099-NEC is to potentially help protect American taxpayers from fraud. A few years back, the 2015 PATH Act required accelerated filing deadlines of Form 1099-MISC, which was where non-employee compensation was recorded. This increased the risk of tax fraud for many employers, as there was an urgent push to complete and file the forms with little attention to detail. In 2018, the IRS further required two filings of the 1099-MISC: one filing for forms that contained information in Box 7, and one for the remaining forms. Due to there being multiple forms, there were penalties if a form with Box 7 information was filed incorrectly. There were, to make matters more complex, multiple filing dates. Forms with Box 7 information were due the last day of January, while Forms 1099-MISC with no Box 7 information were due to the IRS either the last day of February for paper filers or the last day of March for electronic filers.
The IRS decided to remedy these complications by returning the 1099-NEC and a consistent due date of the last day of January for both paper and electronic filers, with no automatic extension available.
What this Means for You
At this time, the IRS does not plan to include the Form 1099-NEC in the Combined Federal/State Filing (CF/SF) Program, in which most states participate. States are still adjusting to use of the new Form 1099-NEC; therefore, you will need to check with each state for their filing requirements.
We advise you to review your software to make sure the 1099-NEC filing form is available in anticipation of this reporting change. As employers will no longer report this compensation on Form 1099-MISC, it’s important to become familiar with these changes now.
For more information, please contact your Sikich team or visit the IRS’s website at https://www.irs.gov/forms-pubs/about-form-1099-nec.