Did you know that the 1099-MISC has been changed for 2020? An old tax form that hasn’t been used since the early 80s is being brought back, the 1099-NEC (Nonemployee Compensation). This form is for payments of more than $600 made to any independent contractors, freelancers, consultants, and vendors in the course of your business during the year. This would include an electrician that you hired to wire in a condenser that you installed; a drywaller that worked for you on a broken pipe repair job; or a virtual assistant that you hired to design your website.
If you have paid any independent contractor more than $600 this year, you will need to file a 1099-NEC with the IRS instead of the 1099-MISC that you have been filing. Box 1 will be used for reporting what was paid to the independent contractor, Box 4 is where you will enter any amounts that you held for backup withholding requirements which is when a tax id number (TIN) was not provided, the IRS informs you that the TIN is incorrect, or the W-9 that the independent contractor provided was not signed. Previously, this amount paid to an independent contractor was entered in box 7 on the 1099-MISC.
The changes came about from legislation that was passed called The Protecting Americans from Tax Hikes Act of 2015 (the PATH Act). It changed the deadline for filing 1099-MISC from the end of February to the end of January and caused a lot of issues at the IRS. This opened the door to fraud so the 1099-NEC was brought back. By separating the non-employee compensation payments from the other funds that are reported on the 1099-MISC, it should make the process more streamlined.
To see more information, see the Instructions for Forms 1099-MISC and 1099-NEC. If you need help deciding what forms you need to file and to who, contact us for a free consultation.
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