The IRS has re-introduced the 1099-NEC form for reporting non-employee compensation in an effort to smooth out the reporting process for contract labor and other related costs. Here are some of the main dos and don’ts of filing 1099-NEC.
Do: File 1099-NEC Forms for Non-Employee Compensation
The IRS requires reporting payments that are: made to someone who is not your employee, made for services in the course of trade or business dealings, or payments over $600 for the calendar made to an individual, partnership, estate, or even sometimes a corporation.
Some examples of this include professional service fees to attorneys, accountants, or architects, fees paid between two professionals, payments for services, even parts and materials, and commissions.
Don’t: Report Exceptions
These exceptions do not need to be reported: payments for phone, freight, telegrams, storage, or merchandise and the like and payments for a foreign government, tax-exempt organizations, tax-exempt trusts, and payments to governments at the federal, state, and local levels.
Do: Verify Recipient Taxpayer ID
One of the first things you need to do is verify each recipient’s taxpayer ID. In order to complete the 1099-NEC for your contract workers, you must also have a form W-9 given to you by each recipient.
Don’t: Use Form 1099-NEC for Personal Payments
A big thing to remember about the new 1099-NEC form reporting is: don’t use the form 1099-NEC to report personal payments.
Do: Mind Your Due Dates
When filing and submitting these forms, remember the due date to distribute 1099-NECs to recipients is January 31 – though this date falls on a Sunday for 2021, so February 1 will be the deadline for the year. You must also be sure to file with the IRS by January 31 (again, February 1 for the year 2021).
Don’t: Use Form 1099-NEC for Employee Wages
In the same way that personal payments aren’t reported on the 1099-NEC, this form is also not for reporting employee wages. Make sure not to include any regular employee compensation on this form.
Do: File Electronically with More than 100 Forms
Due to the parameters of the Taxpayer First Act, businesses will no longer be able to submit paper forms in excess of 100. For the tax year 2020, businesses with more than 100 forms must switch to e-filing. For more on how to e-file form 1099-NEC, read our other blog post.
Don’t: Use Form 1099-NEC for Gross Proceeds to Attorney
Gross Proceeds to an attorney – not attorney fees – are another reporting subject that is not appropriate for reporting on a 1099-NEC form. These fees, including payments of rent towards real estate agents or property managers, must be reported on Form 1099-MISC.
Would you like help navigating the dos and don’ts of filing 1099-NEC forms? Contact us with all your 1099-related questions or sign up for a free eFile360 account.