We recently sent a communication regarding Form 1099 and W-9 Reporting Requirements. From that communication, we received questions specific to the Internal Revenue Service’s introduction of Form 1099-NEC for use beginning with tax year 2020 to report non-employee compensation. We wanted to share the following information with you regarding the new Form 1099-NEC reporting requirements.
The PATH Act, P.L. 114-113, Div. Q, sec. 201, accelerated the due date for filing Form 1099 that includes nonemployee compensation (NEC) from February 28 to January 31, and eliminated the automatic 30-day extension for forms that include NEC. Beginning with tax year 2020, use Form 1099-NEC to report nonemployee compensation.
Specific Instructions for Form 1099-NEC
File Form 1099-NEC, Nonemployee Compensation (NEC), for each person in the course of your business to whom you have paid the following during the year:
- At least $600 in services performed by someone who is not your employee (including parts and materials) (box 1);
- Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish (box 1); or
- Payments to an attorney (box 1).
You must also file Form 1099-NEC for each person from whom you have withheld any federal income tax (report in box 4) under the backup withholding rules regardless of the amount of the payment.
Be sure to report each payment in the proper box because the IRS uses this information to determine whether the recipient has properly reported the payment.
Trade or business reporting only.
Report on Form 1099-NEC only when payments are made in the course of your trade or business. Personal payments are not reportable. You are engaged in a trade or business if you operate for gain or profit.
However, nonprofit organizations are considered to be engaged in a trade or business and are subject to these reporting requirements. Other organizations subject to these reporting requirements include trusts of qualified pension or profit-sharing plans of employers and certain organizations exempt from tax under section 501(c) or 501(d).
Some payments do not have to be reported on Form 1099-NEC, although they may be taxable to the recipient. Payments for which a Form 1099-NEC is not required include all of the following:
- Generally, payments to a corporation (including a limited liability company (LLC) that is treated as a C or S corporation).
- Payments for merchandise, telegrams, telephone, freight, storage, and similar items.
- Payments of rent to real estate agents or property managers. However, the real estate agent or property manager must use Form 1099-MISC to report the rent paid over to the property owner.
- Wages paid to employees (report on Form W-2, Wage and Tax Statement).
- Business travel allowances paid to employees (may be reportable on Form W-2).
BLS can assist and offers the following service:
- Assistance with the preparation of Forms 1099 – If you would like BLS to prepare your 1099 forms, you will need to provide us with specific information, in a specific format, by January 11, 2021.
If you have any questions or need assistance, please contact us.