Form 1099-NEC is a variant of Form 1099 used to report Non-Employee Compensation to the contractors. Now, the IRS has moved all non-employee compensation (NEC), defined as payments of $600 or more to independent contractors, income reporting from Box 7 of the Form 1099-MISC to the new 2020 Form 1099-NEC. All other traditional Form 1099-MISC income types, such as rent, other income, or royalties will continue to be reported on the Form 1099-MISC. However, there are no changes in the rules for determining income that should be reported as non-employee compensation versus other income types such as rent, other income or royalties. The introduction of Form 1099-NEC in 2021 is simply a change in the reporting mechanism to avoid filing deadline confusion and plug any possible fraud through 1099-MISC filing.
The boxes have been now rearranged on the Form 1099-MISC. Box 7, where nonemployee compensation was once reported, and now it shows the check box for direct sales of $5,000 or more. The deadline for filing the 2020 tax year’s 1099-MISC is March 31, 2021 if filing electronically.
Businesses that pay $600 or more in the course of trade or business to independent contractors for services will be impacted by this change. The form 1099-NEC will cover payments to consultants like architects, attorneys, accountants, and any non-employee sales commissions. Payments by federal, state, or local government agencies are also reportable but personal payments are not.
You must generally report a payment as NEC when you meet the following conditions:
You made the payment to an independent contractor who is not your employee. However, if the independent contractor is registered as a C corporation or S corporation, a 1099-NEC will not be required.
You made payments of at least $600 to the recipient during the year.
You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations).
You made the payment to an individual, estate, partnership, or, in some cases, a corporation.
Form 1099-NEC has Payer's information (Name, Address, and TIN), Receiver's information (Name, Address, and TIN) and the boxes to report Box 1 (non-employee compensation), Box 4 (Federal Tax withheld), and Boxes 5-7 (State information). Use the Box 1 to enter the Non-Employee Compensation for $600 or more. Use the Box 4 to enter the backup witholding information.
The due date for filing the 1099-NEC Recipient copy, IRS e-file, and IRS paper filing is Feb 1, 2021.
The penalties for delay in filing form 1099-NEC are:
$50 if filed within 30 days
$100 if filed more than 30 days late, but before August 1
$260 if filed on or after August 1
If your company needs more time to file your 1099-series forms, then you need to apply for an extension using Form 8809. There are two types of extensions:
Extension for filing 1099 forms with the IRS
Extension for delivering 1099 forms to recipients
If you plan to file Form 1099-NEC reporting non-employee compensation payments, you must request an extension no later than January 31.