The Internal Revenue Service (IRS) has introduced a draft version of 1099-NEC, a non-employee compensation form we haven’t seen since 1982. Starting in January 2021, form 1099-NEC will replace the non-employee portion of form 1099-MISC which covers earnings for independent contractors and a wide range of payments such as rent, royalties, prizes, awards and substitute payments.
The former 1099-NEC had one box to report fees, commissions and other non-employee compensation paid to vendors who were compensated at least $600 in a calendar year. However, in 1983, the IRS moved away from the 1099-NEC in favor of form 1099-MISC.
The Protecting Americans from Tax Hikes Act (PATH) of 2015 made several changes to how we file taxes, including moving the due dates for reporting non-employee compensation in Box 7 on form 1099-MISC to January 31. But that caused confusion.
The due date companies were required to file with the IRS was due on February 28 (paper) and March 31 (electronic). But, they also had to send workers their W-2 and 1099-MISC by January. This meant companies would have to file twice to the IRS for the same payee unless they filed everything by January 31. It also created a window where refunds could be issued before the IRS could confirm reporting income leading to fraud.
Essentially, the IRS is looking to streamline the process to report non-employee compensation by reinstating the 1099-NEC. The updated form eliminates the issue of separate filing dates.
However, the 1099-NEC does not eliminate form 1099-MISC. The IRS still requires you to report the miscellaneous income received during the year. It will be reported in different places on your tax return. The biggest change is Box 7 on form 1099-MISC which is now being used for direct sales of $5,000 or more.
The due date for issuing the new form to taxpayers and the IRS will be February 1, 2021 (since January 31, 2021 falls on a Sunday). It can be filed either by paper or electronic filing.
It’s possible the IRS will make more revisions to forms before the 2020 filing season. Consider working with a tax professional or information return specialists like eFile360 to help file the new 1099-NEC and 1099-MISC. Contact us with any questions.