Impact of Form 1099-NEC
Impacting an estimated 70% of 1099-MISC filers, the 1099-NEC form will be required by the IRS for reporting nonemployee compensation. Regardless of all the changes that 2020 has brought to businesses and individuals, the IRS is pushing forward with the implementation of this new requirement. Preparing early for this change is encouraged, as you may want to switch to a paperless filing method or need to order additional forms.
What Is It?
Form 1099-NEC is for reporting nonemployee compensation. This form is based on an old form that hasn’t been used since 1982. It has been redesigned for tax year 2020 to help resolve various issues and prevent fraud.
Who Needs To File It?
1099-NEC is replacing Box 7 of Form 1099-MISC. If you typically report information in Box 7 of Form 1099-MISC, you will need to report that data in Box 1 of 1099-NEC for tax year 2020.
Your business must file Form 1099-NEC for any payment of $600 or more, for services performed in the course of your trade or business, by someone who is not your employee.
What Do You Need To Know?
Federal Reporting: Federal reporting is required. The IRS has set an effective filing due date of February 1, 2021 for Form 1099-NEC.
State Reporting: Over 30 states have confirmed that they are supporting Form 1099-NEC. Reporting requirements and deadlines vary by state.
Form 1099-MISC: For reporting other types of income, filing 1099-MISC to the IRS and various states is still mandatory for tax year 2020.
IRS Combined Federal/State Program: The IRS recently announced that the Combined Federal/State Filing Program will not be supporting the 1099-NEC. That means that you may need to find an alternative method of meeting the requirements and deadline(s) of your state(s).
Best Filing Methods
Many businesses and filers are still operating from home, making electronic (e-file or paperless) filing solutions the preferred method of reporting. Using a total paperless filing solution is your best option, if available to you through your software. Paperless filing tools can easily help you meet all your federal, state and recipient requirements. Some will even print and mail recipient copies for you. If paper forms are your preferred method or your software doesn’t support paperless filing, finding forms compatible with your software is the next best option.
An authorized resource like Nelco (a leader in W-2, 1099 & 1095 forms and technology), supports the 1099-NEC and can provide you with multiple filing options that will meet all your needs. Such as, an all-inclusive paperless filing tool through your software, that can help you meet all your requirements in minutes. Nelco also offers paper forms that are compatible with a variety software programs.