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.
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