Changes to the 1099-MISC Move Forward
Prior to the coronavirus outbreak, the Internal Revenue Service (IRS) announced plans to transition the 1099-MISC Box 7, “Non-Employee Compensation” to its own form—the 1099-NEC. The tax bureau recently indicated that it is moving forward with the change, which will go into effect for tax years 2020 and beyond. Author Lindsey West offers an introduction to the new form in a recent article for Accounting Today.
The simple explanation is this: income that a company previously reported using 1099-MISC Box 7 will now be reported on a 1099-NEC. The new form has spaces for both non-employee compensation and federal withholding for that particular employee’s contract work.
Companies should use the new 1099-NEC form for any person to whom they pay at least $600 for one or more of four circumstances:
- A non-employee performing services, including parts and materials
- A person engaged in the trade or business of catching fish who sells fish or other aquatic life to the company for cash
- An attorney (this term includes law firms and/or other providers of legal services) who is paid in the course of the company’s business.
- A person for whom the company used backup withholding rules to withhold federal income tax (not subject to the $600 limitation)
Other than the removal of the “Non-Employee Compensation” box, the 1099-MISC retains the same information as before, though with some sections moved and renumbered. Tax preparers should be sure to make sure that their software is updated to the new forms prior to filing 2020 taxes.
West closes by addressing three additional issues. First, it is still unknown whether the IRS will add the 1099-NEC to the Combined Federal/State program. Second, for taxpayers who need to make corrections to 1099-MISC forms from tax years 2019 and earlier, the old 1099-MISC will remain available. Lastly, while the 1099-NEC will be due February 1, 2021, the new 1099-MISC will not be due to the IRS until March 31, 2021.
For full details, click here to read the article at Accounting Today.