Heads up, CFOs. IRS has officially unveiled the new Form 1099-NEC, which your finance staff will use to report nonemployee compensation.
In the recently released Tax Tip 2020-80, the Service explained that the reinstated 1099-NEC will be used in tax year 2020 to report any payment of $600 or more to payees.
Generally speaking, the deadline for 1099-NEC will be Jan. 31 each year. But because of how the calendar falls this go-round, the deadline will be Feb. 1, 2021.
Of course, due to the reinstatement of this form, the classic 1099-MISC will also have to change. And you don’t want any little nuisances on either form to trip up your team and result in noncompliance or information return errors.
Here’s a rundown of what to expect from both forms that you can pass along to your A/P and payroll staff, outlined by the experts at the American Payroll Association (APA):
The new 1099-NEC
When reporting on the reinstated form, staffers will need to include information in several boxes:
- Box 1: Nonemployee compensation. APA notes that this also includes nonqualified deferred compensation (NQDC) that doesn’t meet the requirements of IRC Section 409A.
- Box 4: Federal income tax withheld (i.e., backup withholding).
- Boxes 5-7: State income tax reporting.
The new 1099-NEC also has two notable checkboxes that read:
- FATCA filing requirement: Staffers can show they’re reporting payments subject to the Foreign Account Tax Compliance Act.
- 2nd TIN not: Your company can indicate IRS notified you twice within three years that the vendor provided an incorrect TIN.
To see it all laid out, encourage your staff to review and discuss the new form and the instructions on IRS’s website.
The revised 1099-MISC
With nonemployee compensation now being reported on a separate form, your team can expect the 1099-MISC to look a little different.
Here are some of the boxes that have been amended as a result:
- Payer made direct sales of $5,000 or more of consumer productions to a buyer (recipient) for resale is now listed in Box 7 (previously used for nonemployee compensation).
- Crop insurance proceeds are now in Box 9 (previously in Box 10).
- Gross proceeds paid to an attorney are now in Box 10 (previously in Box 14).
- Section 409A deferrals are in Box 12 (previously in Box 15a).
- Section 409A income was deleted entirely (previously in Box 15b).
- NQDC that doesn’t meet the requirements of IRC Section 409A is now in Box 14.
- State tax reporting is now accounted for in Boxes 15-17.
Though next year-end may seem like a long way off, you know the more prepared your company is, the better. And that’s especially true when there are big changes to your regulatory processes, like new information returns.
So, verify that your team leaders take time to go over the new 1099-NEC and the revised 1099-MISC with everyone on staff, either as a group or individually.
It could also be beneficial to alert anyone else involved with nonemployee compensation payments and year-end processes, like HR and departments working with independent contractors, about the changes.