You already know the importance of tax compliance. But equally important to the work you’re doing in March is the work you’re doing at the end of the calendar year. 1099 season is upon us and much like the rest of 2020, it’s a bit more challenging than in years past. What do you need to know about the changes to the forms before you start sending them out in a few weeks?
Significant Changes in 2020’s 1099s
Discussed earlier this year, the IRS has made some significant changes in 1099 filings for 2020 payments. 1099-MISC has been reformatted, some of its information was added to a different form, and it’s on you to adapt or prepare for a taxing time.
1099-NEC: A Streamlined 1099-MISC
The first of the changes to look out for is form 1099-NEC. NEC, As noted by IOFM, stands for “non-employee compensation.” Split from 1099-MISC, this will find use for companies who turn to contractors and freelancers who do business as non-corporate entities.
If your organization uses independent contractors, you have traditionally reported payments to this group in box 7 of Form 1099-MISC. However, for 2020 payments to be reported in 2021, those amounts will be reported box 1 of Form 1099-NEC. This form is more streamlined than 1099-MISC and contains fewer boxes.
Copy A and B of Form 1099-NEC are both due to the IRS and recipients by February 1st, whether filed by paper or electronically. This is different than most forms which have later dates and online filing extensions.
So What about 1099-MISC?
Anytime you turn to a corporate entity, you’ll still use 1099-MISC to report a variety of types of miscellaneous income including payments made for rent, prizes and awards, and medical payments.
Copy A of 1099-MISC is due to the IRS by March 1st if filing by paper, or March 31st if filing electronically. Copy B is due to recipients by February 1st. As rearranged, the boxes on this form most often used by Accounts Payable are as follows:
- Box 1 – Rent
- Box 2 – Royalties
- Box 3 – Other income
- Box 4 – Backup withholding (24%)
- Box 6 – Medical services payments
- Box 10 – Gross proceeds paid to attorneys
- Boxes 15-17 – State reporting information
Tax Compliance for a Better 2021: CPE Webcast
From the federal to the local, having a clear picture of how you will approach tax season in March will save you a lot of headaches in the future. If you’re looking to understand the challenges and changes, we invite you to join us on December 15.
This webinar discusses recent judicial and administrative tax decisions impacting corporations, pass-through entities, and individuals. It includes a brief review of the judicial and administrative tax system includes a discussion of which court a taxpayer should use when an administrative remedy cannot be reached in an IRS audit. Click here to learn more.
Additional Tax Resources
Tax Season is Coming: Forgiveness, Denials, and a Lot of Tax Complexity
How Different States Approach Sales Tax Collection (Part 1)