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When Reporting Non-Employee Compensation, Remember: Form 1099-NEC is Back

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What is old is new again: IRS Form 1099-NEC is making a comeback.

For calendar year 2020 payments, businesses and non-profit organizations will need to report “non-employee compensation” in the amount of $600 or more on the new (or, depending on how long you’ve been in business, old) IRS Form 1099-NEC.

Form 1099-NEC hasn’t been used by the IRS since 1982, when it was taken out of the filing process and replaced with the familiar Form 1099-MISC.

Why is Form 1099-NEC being reintroduced?

The short answer: The IRS is reintroducing Form 1099-NEC to clear up confusion that has been reported over the years by payors and payees alike.

In 2015, Congress passed the Protecting Americans from Tax Hikes Act (PATH Act), which – among many other changes – established separate due dates for specific types of income reported on Form 1099-MISC. Having multiple deadlines for items on the same form threw a wrench in businesses’ filing processes, leading to errors, avoidable penalties, and opportunities for fraud.

By bringing back Form 1099-NEC, and making it exclusively apply to non-employee compensation, the IRS hopes to mitigate that confusion and create a more streamlined reporting process.

What about Form 1099-MISC?

The return of Form 1099-NEC does not mean Form 1099-MISC is going away. Businesses may need to use Form 1099-MISC to report a wide range of other items, including typical items like rent and royalties and very specific items like “fishing boat proceeds.”

When are all of these forms due?

For businesses filing electronically, Form 1099-NEC will be due on January 31, 2021. The deadline for Form 1099-MISC is March 31, 2021.

As always, it’s never too early to start planning ahead. If your business or non-profit organization needs tax advice or help preparing for next year’s filing season, contact our team of experts today.

 

Disclaimer: Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statutes, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law.

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