For tax years prior to 2020, companies were required to file a 1099-MISC form for any nonemployee compensation paid out to subcontractors for any amount over $600. This year the Internal Revenue Service (IRS) has created a new form to be filed, the 1099-NEC which is specifically used for nonemployee compensation.
This article is designed to explain how Premier can streamline reporting, as well as provide updates on the new form implemented by the IRS.
What is Non-Employee Compensation?
Per the IRS, if the four conditions are met, you likely will need to report payments as Non-Employee Compensation:
- You made a payment to someone who is not your employee.
- You made a payment for services in the normal course of your trade or business (including government agencies and non-profit organizations).
- You made the payment to an individual, partnership, estate, or a corporation.
- You made payments to the payee of at least $600 during the year.
What Changed from 2019 to 2020 ?
For the tax years starting after 2020, the IRS has decided to bring back form 1099-NEC. In tax years prior to 2020, the filing deadline for NEC on the 1099-MISC 2019 Form was still January 31, for any amounts in Box 7 which related to non-employee compensation. This has been done to streamline and simplify the process given the different dead lines for each form. Now all items which would have previously been reported in Box 7 of the 2019 1099-MISC will instead be recorded in Box 1 of the 1099-NEC.
Extensions for Form 1099-NEC reporting Nonemployee Compensation can only be requested as a non-automatic 30-day extension of time and must be filed on paper using Form 8809.
Is its important to note per the IRS publication, that the 1099-NEC form is not part of the Combined Federal/State Filing (CF/SF) Program. This means you must file a separate form directly with the state. Form 1099-MISC can continue to be filed with the CF/SF Program.
Although the forms have changed, it is important to note both forms are intended for trade or business reporting only and not related to personal payments. The 1099-NEC is strictly for reporting independent contractor payments exceeding $600 in the year.
How Premier Streamlines Your Report
Premier has specialized forms that allow you to directly print on your IRS Submission forms! This saves you valuable time by automatically generating your 1099-NEC’s. In Premier, simply select the 2020 – 1099-NEC Default Form to print directly on the IRS Forms. In Premier, you are also able to print completed forms directly on blank paper for State tax department forms (Copy 1), recipient tax forms (Copy 2 to file with taxes and Copy B for records), and your own personal copy (Copy C). Premier allows you to automatically generate your annual information for each independent contractor including their address, tax identification number (TIN) and total non- employee compensation paid out, including applicable taxes.
Premier also has the capability to file online directly with the IRS! You are required to have Please note if you have over 200 1099-NEC’s to file, you must efile your forms with the IRS.
What should be reported on 1099-NEC?
Box 1 Non-Employee Compensation:
- Must report payments to independent contractors
- Payments for working interests for oil and gas payments
- Prizes and awards for services performed by nonemployees
- Termination payments to former self-employed insurance salespeople if certain criteria are not met (see IRS for details)
- All payments made to a corporation that provides legal services i.e. the attorney fees must be reported (note settlement payments for contracts are to be included in 1099-MISC box 10)
When reporting taxes on 1099-NEC, it is important to note that if you have paid state or local taxes on the amounts paid to a nonemployee, the amounts you have paid must be included in Box 1.
Some examples from the IRS of what should be included in Box 1 include the following:
- Professional service fees, such as fees to attorneys (including corporations), accountants, architects, contractors, engineers, etc.
- Fees paid by one professional to another, such as fee-splitting or referral fees.
- Payments by attorneys to witnesses or experts in legal adjudication.
- Payment for services, including payment for parts or materials used to perform the services if supplying the parts or materials was incidental to providing the service.
- A fee paid to a nonemployee, including an independent contractor, or travel reimbursement for which the nonemployee did not account to the payer, if the fee and reimbursement total at least $600.
- Exchanges of services between individuals in the course of their trades or businesses, such as a barter transaction.
- Taxable fringe benefits for nonemployees, such as transit passes and parking passes which exceed $21 in a month. The value of parking may be excludable from an independent contractor’s gross income, and, therefore, not reportable on Form 1099-NEC if certain requirements are met
Box 4: Federal withholding taxes
For the majority of all 1099-NEC’s filed, this is may be non-applicable. There are only certain conditions that the IRS may mandate that withholding taxes be held back. The most likely scenario to occur which requires withholding is :
- The recipient fails to provide their TIN to you
- The IRS notifies you to impose backup withholding because the recipient provided an incorrect TIN
Box 5 to 7: State or local sales taxes
According to the IRS, these boxes are provided for your convenience and do not need to be completed.
Who is responsible to file?
If you make a payment on behalf of another person using their funds, you may be responsible for filing Form 1099-NEC. In addition, if you make payments directly and even if you provide management oversight for the issuance of payments you are responsible for filing information returns for payments of $600 or more paid to contractors. Please note, if the independent contractor is registered as a C corporation or S corporation, a 1099-NEC will not be required.
It is important to note the filing deadlines differ between the two forms. The deadline to file Form 1099-NEC using either paper or electronic filing with the IRS is on or before February 1, 2021 (note January 31, 2021 is a Sunday).
However, this is different for Form 1099-MISC. Paper filings for 1099-MISC must by filed by March 1, 2021 (note February 28, 2021 is a Sunday), but electronic filings must be completed on or before March 31, 2021.
Deadlines for Statement to Recipients
Regardless of whether you are filing Form 1099-NEC or 1099-MISC, all recipients must be provided their copy of their respective form by January 31. One exception is amounts reported in Box 8 or 14 of Form 1099-MISC are due by February 15.
For detailed instructions please visit the IRS site for Instructions for Forms 1099-MISC and 1099-NEC (2020).
To learn more about Premier Construction Software can help you streamline your business, schedule a free demonstration with our sales team here.