There is a new tax form – with some changes
Last year, the Internal Revenue Service introduced a draft version of a form that we haven’t seen since 1982: Form 1099-NEC, Remuneration of non-employees. Form 1099-NEC is intended to replace the non-employee compensation portion of a form that many of us know and love: Form 1099-MISC, Miscellaneous income.
Form 1099-MISC persists for other things, like reporting gross proceeds to a lawyer, section 409A deferrals, and unqualified deferred compensation income. But compensation for non-employees – money paid to freelancers, independent contractors, concert workers, and others who are not employees – will now be reported on Form 1099-NEC.
Form 1099-NEC not completely new
The form, which will make a comeback in 2021 for the 2020 tax year, looks like this:
Who gets a 1099-NEC form?
The IRS says trades or businesses must issue Form 1099-NEC if all of the following four conditions are true:
- You made the payment to someone who is not your employee.
- You made payment for services in the course of your trade or business (including government agencies and non-profit organizations).
- You made the payment to an individual, partnership, estate, or in some cases, a corporation.
- You paid the beneficiary at least $ 600 during the year.
Make the change
Why is Form 1099-NEC (re) entered? The Protecting Americans from Tax Hikes Act of 2015 (PATH Act), enacted on December 18, 2015, made several changes to the way we file taxes. Notably, Section 201 of the PATH Act required taxpayers who claimed the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) to wait until mid-February before filing. be able to receive their tax refund.
Of course, taxpayers claiming the EITC and / or the ACCT must have earned wages, usually reported on Form W-2 or – until now – Form 1099-MISC. Employers were required to provide these forms to taxpayers by January 31. However, employers could wait until the end of February, if they were filing on paper, or the end of March, if they were filing electronically, to submit these forms to the government. This means that taxpayers who filed early could get tax refunds even before the IRS received the corresponding forms from employers. The result? Make way for fraud. Scammers and thieves could file false income tax returns weeks before the IRS had a chance to confirm the salary information. This is why the agency started to keep the checks a little longer.
The PATH law also required employers to submit W-2 and 1099-MISC forms to the Social Security Administration (SSA) on January 31, when taxpayers receive their documents. By pushing the tax refund issue date back to February 15, the IRS has time to match employer forms with taxpayer forms. Problem solved, right? Not exactly. The PATH Act has not changed the due dates for all 1099-MISC forms. Remember, this is a catch-all form. The due date for some 1099-MISC forms was January 31, while the due date for other 1099-MISC forms was February 15.
It was confusing for employers and taxpayers, and it was no less confusing for IRS systems and employees. The proposed solution was to bring back the 1099-NEC form to report compensation for non-employees.
The little hitch
It’s not all smooth sailing. This year, the IRS released its update publication 1220, Specifications for electronic filing of Forms 1097, 1098, 1099, 3921, 3922, 5498 and W-2G. Publication 1220 helps employers and tax professionals understand the specifications for electronically filing certain information forms with the IRS, including the requirements of the Combined Federal / State Filing (CF / SF) program.
(Stay with me, it will all make sense in a moment …)
The CF / SF program was created to simplify the filing of information returns. As part of the program, the IRS transmits original and corrected information returns filed electronically to participating states free of charge for approved filers. This means that a separate report to these states is not required.
The information returns that can be filed with the CF / SF program are:
- Form 1099-B, Proceeds from brokerage and barter exchange transactions
- Form 1099-DIV, Dividends and distributions
- Form 1099-G, Certain government payments
- Form 1099-INT, Interest income
- Form 1099-K, Payment card and third-party network transactions
- Form 1099-MISC, Miscellaneous income
- Form 1099-OID, Original discount
- Form 1099-PATR, Taxable distributions received from cooperatives
- Form 1099-R, Distributions of pensions, annuities, retirement or profit-sharing plans, IRAs, insurance contracts, etc.
- Form 5498, Information about IRA contributions
Uh. It includes form 1099-MISC, but where is the 1099-NEC form? It’s true. For now, Form 1099-NEC is not included in the CF / SF program for 2020. This means that the 1099-NEC forms will need to be filed separately for state purposes.
This is important information for some taxpayers who might have relied on the CF / SF program in the past to transmit Form 1099-MISC for non-employees. For 2021, you will need to make other arrangements for the new forms.
You may still need to complete Form 1099-MISC
Also important to know? Even though as of the 2020 tax year you will be using the new 1099-NEC form to report non-employee compensation, you should not report the previous year’s non-employee compensation on the 1099 form. -NEC. If you need to issue a form to report non-employee compensation from the previous year – for example, you realize that you forgot to report a payment for 2019 – you will need to use a 1099-MISC form for the year. former. Understood?
Usually these types of technical changes are reserved for the tax professionals and the tax professionals among us. But these changes will also have an impact on businesses that work with independent contractors and freelancers.
What about independent contractors and freelancers? You also need to know this information, so you know which form to look for (Form 1099-NEC) and when (by January 31 in most years, but in 2021 it will be February 1).
The IRS will provide more information on filing requirements for next year (2021) as 2020 draws to a close. Stay tuned!