The Internal Revenue Service (IRS) has introduced a new form to report compensation paid to nonemployees. For tax year 2020, taxpayers must now use Form 1099-NEC to report payments for services of $600 or more made to nonemployees in the ordinary course of business. These payments were previously reported using Form 1099-MISC (the 1099-MISC will still need to be filed for other forms of payments such as royalties and rent). Nonemployees include independent contractors, third-party consultants, and attorneys who are not employed by the business. A business must issue a separate Form 1099-NEC for each nonemployee to whom it has paid at least $600 cumulatively during 2020 for services performed.
Watch out for several potential pitfalls:
- Forms 1099-NEC are due to the IRS and the recipient by Jan. 31 (for tax year 2020, the deadline is Feb. 1, 2021, as Jan. 31 is a Sunday), whereas the Form 1099-MISC filing deadline remains March 31 for electronic filers.
- The IRS will not grant an automatic 30-day extension for filing Form 1099-NEC. However, a taxpayer may still apply for a non-automatic extension in the event of hardship.
- Form 1099-NEC will not be included in the IRS 1099 Combined Federal/State Filing Program (CF/SF), through which the IRS will forward information from several key forms to the appropriate states. Because Form 1099-NEC will not be covered by the CF/SF, businesses will need to keep an eye on state filing requirements and deadlines to properly report nonemployee compensation.
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