Freelancers and small businesses who hired contracted workers use IRS Form 1099-MISC to file their returns. But, recently the IRS has introduced new Form 1099-NEC to report independent contractor income; also termed as Non-employee compensation form. The deadline to file these forms with the IRS has been revised to help taxpayers get accustomed to the new filing process.
Form 1099- MISC
Form 1099-MISC is used to report miscellaneous income such as rents and payments made to an attorney. This form is filed if a business paid an LLC or an individual a sum of $600 or more during the tax year. Payments made towards rents, prizes, awards, and legal settlements are also required to be filed in Form 1099-MISC. The Form should also be filed for anyone, with whom the business withheld federal income tax under backup withholding rules, irrespective of the amount.
Form 1099- NEC
Use Form 1099- NEC specifically for reporting non-employee compensation or to report payments that are made to individuals who are not on the payroll of a company. Payments made for independent contractors, gig workers, and self-employed individuals, who were once reported in the box-7 of 1099 MISC Form cannot use Form 1099- NEC to report their returns.
Why is Form 1099 NEC used?
- If a business paid more than $600 to a contractor in a tax year, they should file Form 1099 NEC.
- If the contractor is registered as a C or S corporation, then the 1099-NEC is not required.
- Payments made for employees should not come under this Form and it is meant only for payment made for independent contractors. copy of Form 1099-NEC should be sent to the IRS and a copy B of the Form should be sent to the contractor.
Deadline/Due date for filing 1099-NEC and 1099-MISC Forms
Deadline/Due date for filing Form 1099-NEC
- Submit Copy A of1099-NEC to the IRS by January 31, 2021. Since this is a Sunday, file the Form before February 1, 2021 either by paper or through an electronic filing procedure.
- To obtain an extension, the company can file Form 8809 under special circumstances such as suffering a catastrophic event, being caught in a natural disaster, suffering from a terminal illness, etc.
- Submit Copy B of this form to the independent contractor, after getting his consent through mail or by other electronic modes.
Deadline/Due date for filing Form 1099-MISC
Form 1099- MISC should be distributed to the recipients and contractors by January 31, 2021; for this year, the date is extended to February 1, 2021. File the hard copy of the Form with the IRS on February 28, 2021. Since this is Sunday, the due date will be the next working day, i.e., March 1, 2021. Forms that are submitted electronically should reach the IRS by March 31st, 2021.
The fastest and the easiest way to file these forms with the IRS before the deadline is to resort to electronic filing through credible online sources. These simple and cloud-based services will eliminate the need for cumbersome paperwork as well.