Changes You Need to Know for 1099 Reporting
As hot as it still is here in Arizona it is hard to believe that we are winding down 2020 soon. As we enter the fourth quarter, businesses need to ensure they have the proper records on hand for issuing 1099s in January of 2021. There are changes to the Form 1099-MISC and a new form, the 1099-NEC, this year and many of you will need to prepare two sets of forms.
Form 1099-NEC
There is a new form to use this year for reporting non-employee compensation. The Form 1099-NEC is used exclusively for non-employee compensation that would have previously been reported in Box 7 of the Form 1099-MISC. The parameters for determining if you should issue a form, such as the amount paid and entity classification, are still applicable.
The form is simple and straightforward. Input your payer and recipient info as you do with other 1099 forms, box 1 contains the amount paid and box 4 reports any federal income tax withheld. In states with 1099 reporting requirements complete boxes 5, 6 and 7 with the applicable state information. You will need to file these forms with the IRS by February 1, 2020 (as January 31st falls on a Sunday), as well as provide copies to your vendors by that date. If paper filing, also include a Form 1096 to summarize just the 1099-NECs.
Form 1099-MISC
Other than changing the formatting when they removed the non-employee compensation, the Form 1099-MISC remains the same. Continue to use this form to report rents and royalties paid, income to non-employees for items other than services, medical payments, etc. You will need to provide these forms to your vendors by January 31st; however, you have an extended date for filing with the IRS. Paper filers have until March 1, 2020, and electronic filers have until March 31,2020, to get forms to the IRS. A Form 1096 should accompany paper filings.
It is important that you start now to ensure you are prepared for January reporting. If you do not have a standard process in place for obtaining the necessary information, you do not want to get caught in a crunch in January. If you aren’t sure of the best way to handle this process internally click here for tips on best practices. The IRS instructions for these specific forms can be found here.
