As the year draws to a close, it is a perfect time to prepare for the upcoming tax filing requirements. One type of tax form that is due sooner than usual is the 1099-NEC. You may have never heard of this form but don’t worry, it’s just replacing a portion of the 1099-MISC, a form that most business owners are familiar with.
As you may know, nonemployee compensation had to originally be reported on form 1099-MISC. However, this meant that the form had two different deadlines depending on the type of income being reported, which led to business owners being charged erroneous penalties. To mitigate this issue, the IRS reinstated form 1099-NEC (last used in the early 1980s) to exclusively report nonemployee compensation.
You must file form 1099-NEC for each nonemployee that you paid $600 or more for services during 2020. Businesses must also file Form 1099-NEC for each person from whom they have withheld any federal income tax under the backup withholding rules regardless of the amount of the payment. These are due on January 31, 2021 so make sure you send W-9s to any vendors that you still need information from as soon as possible.
Similar to past years you will still use form 1099-MISC for all other types of income, due on March 31, 2021 (deadline is March 1, 2021 if filing by mail). As a reminder, here is a list of who you need to file form 1099-MISC for.
- Paid at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
- Paid at least $600 in:
- Prizes and awards.
- Other income payments.
- Medical and health care payments.
- Crop insurance proceeds.
- Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish.
- Generally, the cash paid from a notional principal contract to an individual, partnership, or estate.
- Payments to an attorney.
- Any fishing boat proceeds.
It is important to file on time with the correct information to avoid penalties. The amount of the penalty, which can be as high as $280 per information return, is based on when a correct information return is filed. If the failure to file a correct information return is due to intentional disregard, the penalty is at least $560 per information return with no maximum penalty.
Have all your vendors’ information but just don’t know how to file? Contact Paragon Accountants today and we’ll take care of the filing process for you!