Frisco Bookkeeping and Tax Services Provides Information Regarding Form 1099-NEC

When business taxpayers file for the 2020 tax year, they should be aware of the need to use Form-1099-NEC. After a 38-year absence, Form 1099-NEC was revived by the IRS for the 2020 tax year.

Business owners and/or managers will enjoy using the revamped form that replaces the use of Form 1099-MISC for reporting independent contractor payments. Please note that using either or both of these forms enable the IRS to ensure that your recipients are properly reporting their payments from your business on their tax returns.

An overview of Form 1099-NEC

Form 1099-NEC (Nonemployee Compensation) is used to solely report non-employee compensation but is not replacing Form 1099-MISC. Rather, it replaces the use of Form 1099-MISC for reporting independent contractor payments.

Last used in 1982, Form 1099-NEC was revived by the IRS in 2020 to in order to separate nonemployee expenses and clear up any confusion that may arise.

Businesses are required to file Form 1099-NEC to report any nonemployee compensation of $600 or more. Specifically, nonemployee compensation includes fees, commissions, prizes, awards, and other forms of compensation for services performed by someone who is not your employee. 

Common examples of nonemployees would include independent contractors or attorneys whom you pay for their legal services. In general, you’re required to file a Form 1099-NEC if you have paid someone who isn’t your employee, for services provided, an individual, partnership, estate, or corporation, or at least $600 to the payee during the year 

You must file and send your Form 1099-NEC to the IRS and to each recipient (of at least $600) by February 1, 2021.  

Reviewing Form 1099-MISC

Form 1099-MISC is used by business taxpayers to report the miscellaneous income that was paid to individuals in 2020. This type of income includes at least $10 in royalties or broker payments, and/or at least $600 in rent, prizes and awards, other income payments, cash paid from a notional principal contract to an individual, partnership, or estate, any fishing boat proceeds, medical and health care payments, crop insurance proceeds, payments to an attorney (in connection with legal services, but not for the attorney’s services i.e., a settlement agreement), and/or nonqualified compensation.

You must send Form 1099-MISC to each recipient by February 1, 2021, and file and send to the IRS by March 1, 2021 if you are filing via hard copy (paper), or March 31, 2021 if you are filing electronically.

Who else must file Form 1099-NEC and/or MISC

In addition to businesses and self-employed individuals, entities required to file Form 1099-NEC and/or Form 1099-MISC include nonprofits, trusts of quality pension or profit-sharing plans of employers, organizations that are exempt from tax under section 501(c), farmers’ cooperatives that are exempt from tax under section 521, widely-held fixed investment trusts, and federal, state, and local government agencies 

Please contact us

If you have any questions or concerns with regard to Form 1099-NEC or MISC, or for any other concern, please feel free to contact us at (972) 885-0156. Frisco Bookkeeping and Tax Services offers a variety of services for individuals and small-to-large companies. Our firm, which boasts more than 18 years of successful, timely and reliable assistance, offers setup and training of QuickBooks®, QuickBooks® Pro Advisor, Online QuickBooks® and Online Cloud. We also provide bookkeeping and payroll services, as well as income tax preparation for individuals and businesses.