The IRS unwrapped a new 1099-NEC form for 2020 tax year that will be used to report nonemployee compensations. Any compensation of $600 or more paid out to nonemployees must be reported under this new 1099-NEC form. Deadline for these forms is January 31st, 2021, but it has been extended to February 1, 2021 due to how the calendar falls this year.
Box Updates on 1099:
- Box 1: Will be used for filling out nonemployee compensation. This box will also include nonqualified deferred compensation (NQDR) that does not meet the IRS Section 409A requirements, according to the American Payroll Association.
- Box 4: Federal income tax withheld
- Box 5-7: Reporting for State income tax.
Please visit the IRS website to ensure you have full knowledge of these changes.
Now that reports of nonemployee compensation is its own separate form, the 1099-MISC form has had some revisions done. Here’s what you can expect:
- Section 409A deferrals are in Box 12.
- Section 409A income has been removed
- Gross proceeds paid to an attorney are in Box 10
- NQDC – for those who do not meet the requirements of IRS Section 409A can be located in Box 14.
- State Tax reporting will be located in Boxes 15-17.
- Crop insurance proceeds are in Box 9.
- Payer made direct sales of $5000 or more of consumer productions to a buy for resale in in Box 7.
HOW WILL These 1099 Changes AFFECT DYNAMICS GP?
If you are using GP to fill out 1099s, the changes made by the IRS will affect you if you are not on GP 2016 or GP 18.2. Microsoft will NOT release year-end patches for version 2015 or older. If you are running this version and need assistance with payroll or 1099 forms, please connect with your Client Account Manager as soon as possible to discuss upgrade options.
As for GP 2016 and GP 18.2, which are the recommended versions as stated above, Microsoft has an update on these year-end patches. 2020 will be the last year Microsoft releases year-end patches for payroll and tax for GP 2016. For tax changes, Microsoft will be releasing patches for these updates on GP 18.2.
What if I can’t upgrade Dynamics GP?
If you are not on GP 2016 or 18.2 and cannot upgrade at this time to receive a patch for tax and/or payroll updates, you do have some more options.
If you are unable to upgrade GP at this time due to budgetary or timing issues, you may want to start looking at using a third-party vendor for tax and/or payroll duties. Your Client Account Manager (CAM) may have some recommended third-party vendors to work with. Please make sure you are in communication with your CAM to ensure you have a plan in place.
Some smaller companies may be able to manually update 1099 forms and/or payroll depending on employee count. If upgrading or outsourcing these duties will not work for your company, you may want to consider keeping these resources in house with manual updates.
Please reach out to your Sikich Client Account Manager for more information or if you have any questions. It is important you understand these updates and have a plan in place for your company.