Key Considerations for Filing New 1099 NEC: Do you know the old 1099 NEC Form was revived back for 2020 tax year? If your answer is “No”, then you need to know about the changes made in the IRS 1099 Form for the 2020 tax year. Form 1099 NEC has brought back by the IRS to clear the confusion about dual filing deadlines using 1099 MISC. New 1099 NEC helped the IRS in controlling fraudulent claims.
Are you thinking about prior year NEC corrections? Don’t get tensed. We’ll let you know about the new 1099 NEC Tax Form for the 2020 tax year. Also about correcting prior year error reporting NEC with 1099 MISC box 7.
IRS 1099 NEC Form peculiarity for 2020 tax year
The IRS has revived Form 1099 NEC to eliminate confusion about complying with new filing deadlines aimed at combating fraud. IRS released its final version of Form 1099 NEC, on December 6th, 2019. Use the new Form for reporting current and deferred compensation paid to independent contractors for 2020 tax year. Form 1099 NEC replaces box 7 of the pre-2020 Form 1099 MISC for reporting non-employee compensation.
NEC generally includes payment of $600 or more in fees, commissions, prizes, and awards. The payments made are for services performed as non-employee, and for trade or business only.
1099 NEC most common payees
The IRS specifies that some of the most common payees are those who received at least $600 payments during the year as:
Freelancers
Payments made for services performed by freelancers who aren’t employees receive 1099 NEC Form. Nowadays most people work as freelancers and receive compensation of more than $600 a year. They work on the purpose of business or trade as a non-employee.
Law firms
An attorney or other legal service providers are considered as law firms. They receive 1099 NEC Form for services performed in a tax year. For example, fees paid to attorneys for performing the legal activity.
Individuals
Issue Form 1099 NEC online to the individual from whom your business withholds any federal income tax under backup withholding rules.
Form 1099 NEC Software complications
Since this is a transition year, many tax or accounting software systems may not be equipped with 1099 NEC. Because this a new tax form which brought its way back for the 2020 tax year. As we know, most of the business individuals used to report NEC with 1099 MISC box 7. After reviving the old 1099 NEC Form for 2020, every business individual must report payments made to non-employees using the new Form.
The new Form created a lot of changes in 1099 MISC Form and reporting NEC payments for the 2020 tax year. The taxpayers may face software complications when reporting NEC for the 2020 tax year using the new Form. It’s a good idea to reach out to your software provider. To see whether their software is updated to accommodate 1099 NEC filing before year-end deadlines.
State-by-State filing obligations of 1099 NEC
As mentioned earlier, the IRS newly introduced 1099 NEC Form for the 2020 tax year reporting compensation made to non-employees. Due to this, 1099 NEC Form is not involved in the Combined/Federal State Filing program. With the help of the CF/SF program, IRS directly sends 1099 Form to the states which are participated in the program. If your state is not participating in CF/SF program, you need to directly file the appropriate 1099 Form with the state.
Since the IRS excluded Form 1099 NEC from its CF/SF program, filers face obligations inf filing the Form with the state. So, if your state mandates 1099 NEC filing, you’ll have to do it separately from your IRS filing. Be sure, research the state requirements and file the forms with the states.
How to correct the old 1099 MISC?
Let’s say if you need to correct a box 7 amount from a 2019 1099 MISC form. Since the new 1099 MISC doesn’t include that same box 7 anymore. How to handle the correction?
According to the IRS, corrections to 1099 MISC Box 7 for tax years 2019 and earlier should remain on the old 1099 MISC Form. In other words, you shouldn’t correct a 2019 1099 MISC for NEC with a 2020 1099 NEC Form. Use the correct tax form to get corrections right and avoid further penalties.
When does 1099 NEC Form due for the 2020 tax year?
As you may know by now, 1099 NECs and 1099 MISCs don’t have identical due dates. And you’re required to ingrain the difference. Paper and electronic 1099 NEC Forms are due to the IRS on the same date. Issue 1099 NEC Copy A to the IRS by February 1st, 2021. Furnish the recipient copies of 1099 NEC Form by February 1st, 2021.
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