The Internal Revenue Services officially released the Form 1099-NEC in December 2019. After a hiatus of about 38 years, this Form has been reinstated from the tax year 2020. The revamped Form substitutes the Box 7 of Form 1099-MISC. It is to be used for declaring Non-Employee Compensation, as the acronym NEC denotes. Form 1099-NEC has been revived in 2020 to enhance thorough compliance and prevent fraudulent reporting of income.

What is Form 1099-NEC?

The Form 1099-NEC is a special form reintroduced with the year 2020 for the exclusive purpose of reporting Non-Employee Compensation. The Form was last used in 1982, after which it was withdrawn. So far, the disclosure of Non-Employee Compensation was made in Section 7 of Form 1099-MISC.

Pre-2015, the taxpayers filed a single Form 1099-MISC to showcase non-employee compensation along with the miscellaneous income. This form was due by February 28 of the succeeding year. However, after the enactment of the PATH Act (Protection of Americans from Tax Hikes Act) in 2015, the due date for the disclosure of Non-Employee Compensation was advanced to January 31. This led to the dual filing of the Form 1099-MISC due to the presence of separate due dates. As a result, there were unwanted complexities and compliance issues for the taxpayers as well as the IRS Department. Many duly filed forms and returns with the IRS were wrongly considered as delayed returns.

With the re-launch of Form 1099-NEC, the Non-Employee Compensation will be separately reported. One needs to be mindful that the reinstated Form does not entirely replace Form 1099-MISC. It aims to replace only one Section of the Form. The ongoing form 1099-MISC will be redesigned by the IRS for reporting miscellaneous incomes of the entity earned during the year.

What does a taxpayer need to report with Form 1099-NEC?

As discussed earlier, the Form 1099-NEC is for the objective of stating Non-Employee Compensation. Under the Non-Employee Compensation agreement a business entity makes payments to persons who are not employed by it. These persons are independent contractors hired by the payer for availing different services.

Any payment is disclosable in Form 1099-NEC if:

  • It is paid for services received in the course of business or trade.
  • The amount paid to the payee must exceed or be equal to $600 annually.
  • It is made to a person who is not an employee with the entity.
  • The payment may be made to an individual, partnership firm, or even a corporation.

Non-Employee compensation can be paid in the form of:

  • Commissions
  • Prizes
  • Fees
  • Awards
  • Other payments of similar nature for services obtained.

Instances of Non-Employee Payments include:

  • Professional Fees paid to Accountants, Architects, Attorneys, etc.
  • Payments made for receiving any service along with payments for any materials or parts incidental to the performance of the service.
  • Any Commissions paid to Non-Employee personnel not repayable during the year
  • Fees given by one professional to another professional as a result of any fee-splitting agreement.

Do not use this Form for payments as below:

  • Payments made to employees of the entity. Use the form W-2 to report the same.
  • Payments made for non-business, personal purposes.
  • Gross Payments excluding Fees, made to Attorneys.
  • Payments to Real Estate agents
  • Payments made to organizations eligible for Tax Exemptions
  • Payments for Telegrams, Freight, Merchandise, Storage, and similar purposes.

What are the specific details to be provided in the Form 1099-NEC?

In Form 1099-NEC, a taxpayer needs to include details as mentioned below:

  1. Payer’s Information
    Mention the Business Name, Address, and Phone Number
    Business Tax Identification Number
  2. Recipient’s Information
    Mention the Name, Address, and Tax Identification Number
  3. Amount of total Non-Employee Compensation in Box 1 (Where the payer has made a payment amounting $600 or more in the year)
  4. Details of any Federal Income tax concerning non-employee payments withheld during the year in Box 4
  5. Details of State Income tax, if any withheld.
  6. If any assets are owned in any foreign nations, checkmark on the applicability of the FATCA (Foreign Account Tax Compliance Act) filing requirements.

A newly hired independent contractor must fill the form W-9 to report the Non-Employee Compensation earned in the year.

Similar to Form 1099-MISC, Form 1099-NEC has different copies for submission to separate persons and authorities.

  • Copy A: This Copy is for submission to the IRS
  • Copy 1: This Copy is for filing with the State Tax Department, if applicable to the assessee
  • Copy B: This Copy is for the perusal of the independent contractor
  • Copy 2: This Copy is also for the independent contractor
  • Copy C: This Copy is to be retained by the taxpayer for his business records.

What is the applicable due date for the Form 1099-NEC?

The Tax Payer needs to file the Copy A of the Form with the Internal Revenue Service Department by February 1 each year. The Form can be filled in manually on paper or electronically via an official email to IRS. A Person can also e-file the Form through the IRS FIRE System.

The Form 1099-NEC also needs to be duly completed and submitted to the Non-Employees with the relevant details of the Non-Employee Compensation paid during the year on or before January 31, succeeding the reporting year. For the year 2020, the submission to Non-Employees is required to be carried out by February 1, 2021, as January 31, 2021, is a Sunday.

How Initor Global helps Tax Payers with its Services?

The reliable and adept team of Taxation experts at Initor Global is always agile about the latest information the IRS notifies from time to time. We deliver timely updates to all our customers. Our team can provide complete assistance to prepare and file various forms and returns on behalf of your entity. With our premier services, you can remain worry-free about the various tax compliances. To know more about our world-class accounting, taxation, and financial services, get in touch with the veterans at Initor Global, today.

What does the Revived Form 1099-NEC entail for Taxpayers in 2020?
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What does the Revived Form 1099-NEC entail for Taxpayers in 2020?
The Internal Revenue Services officially released the Form 1099-NEC in December 2019. After a hiatus of about 38 years, this Form has been reinstated from the tax year 2020.
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