The New (Old) 1099-NEC!
The Bottom Line:
The 1099-NEC will now report Non-Employee Compensation
It’s due January 31
It’s taking over the job from the 1099-MISC
Using CARES to Care for Those in Need:
Watch out everyone, there’s a new form on the block!
Well….it’s not exactly new but it’s been pressing snooze for 38 years. From the 2020 taxyear onward, the 1099-NEC will be used to report non-employee compensation. Wait…isn’t that the 1099-MISC’s job? Yes! But just one of them. The 1099-NEC will not *replace* the 1099-MISC, but take over some of its reporting duties.
Let’s explore:
The 1099-MISC
The 1099-MISC has been used to report income that doesn’t fit on a W2 or other income-reporting form. If you’ve given cash prizes, or paid rent, royalties, an attorney, or other non-employee more than $600.00 dollars — generally you filed a 1099-MISC.
There are many rad niche examples necessitating 1099-MISC use—have you cash-purchased more than $600.00 of fish from someone in the awesome business of catching fish? 1099-MISC!
But we digress: Most business owners used the 1099-MISC for independent contractors.
The IRS defines independent contractors as those you pay to work but “control or direct only the result of the work and not what will be done and how.” Understanding who is an employee and who is an independent contractor is extremely important:
So: if you own a business, you don’t have to send a 1099-MISC to independent contractors anymore! But you DO have to send…
The 1099-NEC!
Here it is — the new (old) form. You’ll need to file a 1099-NEC if you paid someone more than $600.00 in non-employee compensation during the 2020 tax year.
You have to file & send out 1099-NECs by January 31 each year — in 2021, since that’s a Sunday, you have until February 1. How nice!
This process isn’t new to any employer who has sent out 1099s, and while a change can be confusing (ANOTHER FORM?!) the 1099-NEC solves a large problem for the IRS: since 2015 there have been separate due dates for separate uses of the 1099-MISC. This got complicated, and many forms were mistakenly penalized as late. To streamline, the IRS removed the most commonly problematic 1099-MISC usage: non-employee compensation reporting.
Enter the 1099-NEC!
Hopefully, this new form makes it easier for all — it’s simplified, specific and only does ONE thing.
So keep track of what you pay non-employees this year (as you should every year) and get ready to send out 1099-NECs come January 2021. If you have trouble filing/sending 1099s of either kind, please reach out to your favorite accountants (*wink*) for help! Otherwise—file and send on time, and you’re sure to have a good day.