The IRS has introduced a new Form the 1099-NEC. The NEC is short for non employee compensation. This is the new form for reporting independent contractor income. The 1099-Misc will not be used to report income for individuals who’re self-employed in 2020.
What is a 1099-NEC?
The 1099-NEC is a new form created to report non-employee compensation.In previous years all independent contractors would receive a 1099-MISC form with the amount paid to you being reported in the box 7. The requirements to file a 1099-NEC are still the same as a 1099-Misc.
A 1099-NEC needs to be filed if your business paid any contractor more than $600 in a single tax year. You must also file Form 1099-NEC for each person from whom you have withheld any federal income tax (report in box 4) under the backup withholding rules regardless of the amount of the payment. Payments to a corporation including a limited liability company (LLC) that elected to be treated as a C or S corporation will not be required to file 1099-NEC. The exemption from reporting payments made to corporations does not apply to payments for legal services. Therefore, you must report attorneys’ fees (in box 1 of Form 1099-NEC). The entity type should be reported to you on a W-9 form.
Responsibilities for filing 1099-NEC?
It’s your company’s responsibility to file the Form 1099-NEC with the IRS and send a copy to the independent contractor by January 31. The due date is similar to the W-2’s. There are two copies that need to be filled out. Copy A is sent to the IRS while Copy B needs to be sent to the contractor. You can either e-file or send through mail.
If you missed the January 31st deadline, you will end up paying a penalty depending on how late the filing is. These penalties are:
$50 if you file within 30 days
$100 if you file more than 30 days late, but before August 1
$260 if you file on or after August 1
If you are unable to file on time, you can request an extension by submitting Form 8809 to the IRS. However, you will still need to supply the 1099-NEC forms to any contractors by January 31.If you need assistance completing your 1099 NEC. Please reach out to International Accounting & Tax Consultants (IATC Inc) at www.iatcpro.com.
The President signed the “Consolidated Appropriations Act, 2021 into law. This law provided $284B dollars to be used for the second round of the Paycheck Protection Program. The application deadline for businesses wanting to receive a PPP2 loan is March 31, 2021. Due to the high demand expected, businesses should apply as early as possible. It is very likely the funds will be exhausted before the actual March deadline.
If your company received the first round of funding you are not automatically excluded from the second round of funding.
The new PPP2 loan requirements are a little different from the first round:
Your company must have less than 300 employees.
Must have been in operation before February 15, 2020.
Cannot be a publicly traded company.
Can’t be a business primarily engaged in political advocacy or lobbying.
Your company can not have significant ownership by Residents of China.
You must now be able to show at least a 25% reduction in gross revenue in any quarter of 2020 compared to the same quarter in 2019. If your business was new and didn’t exist the entire year of 2019. Use the quarters you were in business before February 2020.
Your business must have used the previous PPP loan or have a plan in place to use all of their original PPP loan for approved expenses.
The maximum amount of each loan is maxed at $2 million. Each entity can only have one PPP2 loan. The PPP2 loan forgiveness rules are similar to the PP1 rules. Payroll costs should account for at least 60% of the PPP2 loan amount spent and any remaining should be spent on other approved costs, all within the covered forgiveness period. The forgiveness period starts when you receive your PPP2 money in your bank account. Your company will either have an 8-week or a 24-week covered period of forgiveness. The approved Payroll costs includes an employee salary and benefits like vision and dental benefits. The “other” approved expenses would be the rent, mortgage interest, and utilities. Payments for software, cloud computing, HR systems, and accounting needs.
The PPP2 program included other additional expenses that are allowed to be covered. Any repair costs associated with looting or vandalism during 2020 disturbances when the cost of repairs were not covered by any insurance. Any payments made for essential goods for periods before the PPP2 loan was received. Payments for perishable items can also be made either before or after the PPP2 loan is received. Any PPE equipment or facility modification expenditures spent by your business to comply with COVID-19 federal health and safety guidelines. This would include items like face masks, drive-through windows, thermometers, and even HVAC improvements from March 1, 2020 throughout the year.
IATC Inc encourages businesses that qualify to apply as soon as possible for the PPP2 loan. If you need detailed information please feel free to contact us at www.iatcpro.com