Is your company planning to compensate non-employees in 2020? Take a look at the IRS tax forms latest updates. The IRS has declared Forms for 1099-NEC and 1099-MISC. The year-end reporting of 1099 for the year 2020 for non-employee compensation will not be on the 1099-MISC Form in box 7. As an alternative, the Form 1099-NEC filing is crucial. The IRS issued such updates exclusively for Non-employee compensation for a better-streamlined process and to alleviate confusion.
Instructions for filing1099-NEC and MISC Forms
Instructions for filing Form 1099-NEC
Starting with the 2020 tax year, Form 1099-NEC is obligatory for reporting non-employee compensation. The 1099-NEC filing is vital if the below criteria are fulfilled:
- If payments to the payee in the tax year are at least $600.
- For making payments to others apart from employees.
- Expenses regarding the services offered to business or trade to non-profit or government organizations.
- For paying money to an estate, partnership, individual, or corporation.
Tax filers should bear in mind that personal payments do not fall under 1099-NEC reporting. The form is vital only for business payment and trade for profit. Few examples include,
- Payment of fees from one professional to the other.
- Making payments to independent contractors.
- Paying fees to professional service providers, including accountants and attorneys.
- Non-employee salesperson commission payment contingent to repayment, wherein repayments are unsuccessful in the calendar year.
Taxpayers must present form 1099-NEC with the IRS by January 31. Electronic filing or paper filing is a possible way.
Instructions for filing form 1099-MISC
For the tax year 2020, employers should opt for form 1099-MISC for the following payments made in business during the year.
- An amount of $600 for
- Awards and prizes
- For fishing boat proceeds
- Income payments
- Proceeds for crop insurance
- Money from notional principal contract to an estate, partnership, or an individual.
- Making payment for medical and healthcare.
- Deferrals for section 409A
- Payments towards attorney
- Nonqualified deferred compensation.
- Form 1099-MISC is necessary if you have made a payment of $10 in broker payments or royalties as a replacement for tax-exempt interests or dividends.
Furnishing form 1099-MISC to receipts is crucial by January 31. Also, February 28 is the deadline to file with the IRS.
Major Changes in the 1099 Form Series
Tax professionals must make a note of the prime changes of 2020 IRS form 1099-MISC. For tax filers, usually filing form 1099-MISC with box 7, needs to file form 1099-NEC for the 2020 tax year. The 1099-MISC that uses box no 7 for acquiring data for non-employee compensation will be taken over by Form 1099-NEC. The capturing of payments to non-employee service providers such as vendors, independent contractors, consultants, and freelancers must use form 1099-NEC.
It is clear and evident that many businesses need both forms. The 1099-NEC is mainly for independent contractor reporting payments of $600 or additional in their business. Remember that 1099-MISC is mandatory for items such as rent, royalties, and healthcare payments. If there are queries regarding these Forms, do not hesitate to reach Tax2efile.com for assistance.