IRS 1099-MISC vs. 1099-NEC
What happened to Box 7 on the IRS 1099-MISC form?
2020 IRS tax form implications
In a move that will impact business owners and tax professionals across the nation, the IRS has released the 2020 Form 1099-NEC. The new form replaces Form 1099-MISC for reporting nonemployee compensation (in Box 7), shifting the role of the 1099-MISC for reporting all other types of compensation. As a result of the new 1099-NEC and redesigned 1099-MISC, the overall process for reporting nonemployee compensation is changing for the 2020 tax year.
The 2020 IRS form 1099-MISC has major changes
Nonemployee compensation (Box 7) has been removed from the Miscellaneous Form. If you typically file any 1099-MISC forms with Box 7 completed, you will need to file Form 1099-NEC for tax year 2020. You must also file Form 1099-MISC for anyone from whom you withheld federal income tax under the backup withholding rules, regardless of the amount for tax year ending 2020. Boxes 7 – 17 have been repurposed. Box 18 has been eliminated.
Introducing the new form required for tax year 2020, Form 1099-NEC
Data previously reported on Box 7 (Nonemployee compensation) of the 1099-MISC, the new 1099-NEC will capture any payments to nonemployee service providers, such as independent contractors, freelancers, vendors, consultants and other self-employed individuals (commonly referred to as 1099 workers) for tax year 2020. This will be required to be reported in Box 1 of Form 1099-NEC for tax year 2020.
Why is the 1099-NEC Replacing Form 1099-MISC (Box 7)?
The Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) — enacted on December 18, 2015 – created a unique situation for tax filers. In addition to moving the due date for Form 1099-MISC Forms containing data in Box 7; (nonemployee compensation), from February 28 to January 31, the legislation eliminated the automatic 30-day filing extension. If an employer filed a batch of multiple 1099-MISC forms (potentially with data in Box 7 (nonemployee compensation) and without) after the January 31st deadline, the IRS could mistakenly treat them all as late returns and apply fines.
Beyond the time-management and administrative issues for the IRS to properly process the forms, some misaligned deadlines on the taxpayer side opened the door to fraud. To resolve the various issues, the IRS revived Form 1099-NEC (originally established in 1982), effectively separating Box 7 (nonemployee compensation) from the 1099-MISC, as well as staggering the filing due dates.
What is your next move?
Contact your software provider to ensure compatibility and updates to support the new 1099-NEC form. Form 1099-NEC is not a replacement for Form 1099-MISC. Form 1099-NEC is only replacing the use of Form 1099-MISC for reporting independent contractor payments. According to the IRS, the people for whom an organization should use the new 1099-NEC are those with at least $600 in services performed by someone who is not an employee (including parts and materials) (Box 1). The IRS estimates that 70% of all 1099_MISC filings will require Form 1099-NEC. For tax year 2020, filing 1099-MISC to the IRS and various states is still mandatory for reporting other types of income. State reporting requirements vary by state. Approximately 20 states have indicated support for 1099-NEC. It is expected more states will require it. This translates to an estimated 70 million 1099-NEC filings for tax year 2020. To obtain instructions for Forms 1099-MISC and 1099-NEC (2020), consult the IRS website.
Where can you obtain the necessary tax filing forms?
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