If you are an independent contractor, you’ll want to note that there are new reporting requirements for 2020. The IRS has rebooted a previously used form, the 1099-NEC, for reporting non-employee payments. The NEC stands for Non-Employee Compensation, and changes are in store for about 70 percent of filers who reported information in Box 7 of Form 1099-MISC.
Starting in tax year 2020, any business – regardless of size – that pays at least $600 for services performed in the course of their trade or business by a person who is not their employee is required to file form 1099-NEC. For example, any business that has cash payments for fish (or other aquatic life) that they purchase from anyone engaged in the trade or business of catching fish must file the form 1099-NEC. Even payments paid to an attorney are required to be captured on Form 1099-NEC. The exception to this filing rule is if the independent contractor is registered as a C Corporation or a S Corporation.
It is important if you are the payer that you request Form W-9 from the independent contractor before they begin working for you. This will give you all the information you need to accurately file Form 1099-NEC. The filing deadline of Form 1099-NEC is on or before February 1, 2021. For 1099-MISC, the filing deadline is March 1, 2021 if you are paper filing or March 31, 2021 if you will file electronically.
What is the difference between Form 1099-MISC and Form 1099-NEC? Form 1099-NEC is specific to non-employee compensation and has both Box 4 for Federal withholding and Box 5 for state withholding. Form 1099-MISC has been revised and has rearranged box numbers for reporting certain income.
The biggest change is the removal of non-employee compensation. Form 1099-MISC includes, rents, royalties, fishing boat proceeds, medical and health payments, substitute payments in lieu of dividends or interest, crop insurance proceeds, gross proceeds paid to an attorney, fish purchased for resale other income. Section 409A covers deferrals, excess golden parachute payments, nonqualified deferred compensation, federal and state withholdings and payer-made direct sales totaling $5,000 or more of consumer products to recipient for resale.
If you need a tax advisor to ensure you are informed on all the latest tax requirements, please contact Osborne Rincon at (760) 777-9805.