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IMPORTANT 1099 INFO - Starting in 2020, the IRS has removed Box 7, Nonemployee Compensation, from the 1099-MISC and moved it to form 1099-NEC.
1099-NEC vs. 1099-MISC FAQs
Q: Can I process 1099-MISC & 1099-NEC Recipients all together at once?
A: No. Within Aatrix, each 1099 filing has to be processed separately with the required recipients and a separate 1096.
Q: What if 1099-NEC is not available to select in my Accounting/Payroll Software?
A: You will want to verify that Aatrix is up to date. Start by opening your history or existing reports option and taking the Automatic Update if prompted. After you have completed the update, recheck your forms list to see if the 1099-NEC is available. If the report is still unavailable, please contact your Accounting/Payroll Software support for assistance. The Accounting/Payroll Software may need to be updated before processing the new 1099-NEC.
Q: Why are 1099-NEC Recipients showing up in the 1099-MISC process?
A: Most Accounting/Payroll Software have configurations that indicate the type of 1099 a Vendor/Recipient should receive. If you have questions about adjusting the Vendor/Recipient configuration, please contact your Accounting/Payroll Software support for assistance. In the event of a time constraint, the alternative solution would be to remove the Recipient's row from the preparer.
The 2020 Form 1099-NEC
After a 38-year absence, Form 1099-NEC is making a return in the 2020 tax year. Employers will use a revamped form and say goodbye to reporting Nonemployee Compensation (Box 7) on Form 1099-MISC.
Overview of Form 1099-MISC
Before 2020, you would include Nonemployee Compensation in Box 7 on Form 1099-MISC. In 2020, Box 7 on Form 1099-MISC will turn into "Payer made direct sales totaling $5,000 or more of consumer products to recipient for resale” and Nonemployee Compensation will be reported on Form 1099-NEC.
What is Form 1099-NEC?
Form 1099-NEC is a form that reports Nonemployee Compensation and any Federal tax withheld. Form 1099-NEC is only replacing the use of Form 1099-MISC box 7.
Form 1099-NEC is not new; it was last used in 1982. The IRS is reviving the form in 2020 in response to the Protecting Americans from Tax Hikes Act (PATH Act).
Before the PATH Act, taxpayers could use Form 1099-MISC to report Nonemployee Compensation and miscellaneous income items by February 28 each year. In 2015, however, the PATH Act changed the Form 1099-MISC due date to January 31 for reporting Nonemployee Compensation.
This change confused employers and taxpayers and caused the IRS to mistakenly treat forms received after the January 31 deadline as late returns.
The IRS has brought back Form 1099-NEC to separate nonemployee expenses and clear up this confusion.
What do you report on Form 1099-NEC?
Use Form 1099-NEC to report nonemployee compensation. Nonemployee compensation includes the following payment types to independent contractors:
- Other forms of compensation for services
Where do you send Form 1099-NEC?
Like Form 1099-MISC, there are multiple copies of Form 1099-NEC you must distribute.
Check out each copy and its recipient below:
- Copy A to the IRS
- Copy 1 to the State tax department if necessary
- Copy 2 and B are for the recipient
- Copy C is for the payer's records
The 1099-NEC can be electronically filed using the IRS FIRE system or mailed directly to the IRS.
What do you include on Form 1099-NEC?
As a reminder, newly hired independent contractors must fill out Form W-9. Then, use Form W-9 to report Nonemployee Compensation at the end of the year.
When filling out Form 1099-NEC, include the following information:
- Business’s name, address, and phone number
- Business’s TIN
- Recipient’s name, address, and TIN
- Total Nonemployee Compensation
- Federal and state income tax withheld
For more information on how to fill out the form, use the IRS’s website and the 1099-NEC instructions.
What is the due date for Form 1099-NEC?
The IRS, and the recipient copy, will need to be filed by the end of January.