Updates to Forms 1099 Effective for 2020

The IRS has revived the Form 1099-NEC for the 2020 tax year, after last being used in the year 1982. For the prior 38 years, businesses were tasked with using Form 1099-MISC to report Non-Employee Compensation, but they will now use Form 1099-NEC.

For decades, non-employee compensation has been reported in Box 7 of Form 1099-MISC, but that changed with the revival of Form 1099-NEC by the IRS for the 2020 tax year.  Beginning with the 2020 tax year, non-employee compensation will be reported in Box 1 of Form 1099-NEC, while other kinds of payments should be reported using the other Forms 1099 (1099-MISC, 1099-INT, etc.).

 

Why did the IRS bring back Form 1099-NEC?

The 2015 Protecting Americans from Tax Hikes Act (PATH Act) changed the due date of reporting non-employee compensation using Form 1099-MISC from February 28th to January 31st each year, while the due date for reporting miscellaneous income using Form 1099-MISC remained unchanged.  Because of this due date change for non-employee compensation, some businesses had to begin filing two Forms 1099 for individual recipients.  This caused confusion for businesses and taxpayers as well as for the IRS, and it ultimately resulted in the IRS mistakenly treating Forms 1099-MISC that were received after January 31st as late returns, even if they did not contain non-employee compensation in Box 7.

To alleviate this confusion and to ease the added burden for all parties involved, the IRS decided to bring back Form 1099-NEC beginning with the 2020 tax year.  The IRS has also updated Form 1099-MISC with corresponding changes, and Box 7 of Form 1099-MISC can no longer be used to report non-employee compensation.

Finally, unlike Form 1099-MISC, the data reported on Form 1099-NEC will NOT be included in the program where the IRS shares filing data with States. 

 

What should be reported on Form 1099-NEC?

Non-Employee Compensation that should be reported using Form 1099-NEC includes the following types of payments to independent contractors:

  • Fees
  • Commissions
  • Prizes
  • Awards
  • Other forms of compensation for services

Form 1099-NEC should typically be used for the following situations:

  • Non-Employee Compensation of $600 or more paid to Independent Contractors
  • Payments to a non-employee who performed services for your business
  • Payments to an individual, a partnership, an estate, or a corporation
  • Should include payments for services AND for parts or materials used to perform the services

Where to send copies of Form 1099-NEC?

Similar to Form 1099-MISC, there are multiple copies of Form 1099-NEC that you must distribute or file.  Unlike Form 1099-MISC, the IRS will not share Form 1099-NEC filing data with States.

  • Copy A: file with the IRS
  • Copy 1: file with the State tax department, if applicable
  • Copy B: provide to the Independent Contractor/recipient of payment
  • Copy 2: provide to the Independent Contractor/recipient of payment
  • Copy C: keep for your business records

As a client of Fuse Workforce Management, we will file Copy A of Form 1099-NEC electronically to the IRS by the due date of January 31st.  You will be responsible for the proper handling of all other copies of Form 1099-NEC, including filing Copy 1 with your State tax department(s).

What should be reported on Form 1099-MISC?

Payments that should be reported using Form 1099-MISC include the following types:

  • Royalties
  • Rents
  • Prizes and Awards
  • Other Income Payments
  • Medical and Healthcare Payments
  • and other types of payments

Where to send copies of Form 1099-MISC?

  • Copy A: file with the IRS
  • Copy 1: file with the State Tax Department, if applicable
  • Copy B: provide to the recipient of payment
  • Copy 2: provide to the recipient of payment
  • Copy C: keep for your business records

As a client of Fuse Workforce Management, we will file Copy A of Form 1099-MISC electronically to the IRS by the due date of February 28th.  You will be responsible for the proper handling of all other copies of Form 1099-NEC, including filing Copy 1 with your State tax department(s).  The IRS shares Form 1099-MISC filing data with States, but you should check to see if your State(s) require businesses to file anything directly with their Tax Department(s) as well.

 

For more information about Forms 1099-NEC and 1099-MISC, and exactly what should be reported on each, please see the IRS Instructions.