A Complete Guide to the New IRS Form 1099-NEC (Nonemployee Compensation)

The IRS has carved out the Nonemployee Compensation segment from the 1099-MISC form and introduced 1099-NEC as a separate form for accuracy of reporting.

Businesses have accustomed to several changes with regards to the new guidelines and regulations enforced by the state and federal level governments in light of the global pandemic Covid-19. As 2020 is coming to an end, businesses are bracing up for the tax season starting New Year in 2021. 

The IRS has made some major changes to the 1099-MISC Form, which resulted in the introduction of a new form, which exclusively deals with all non-employee compensations. The revised 1099-MISC form shows that the boxes have been rearranged for certain incomes that must be reported.

As business professionals, we understand that these changes may seem overwhelming, especially to businesses that hoped for a less challenging start in 2021.

But, to make things a little easy for you, we have put together all the necessary information, which you can use as a roadmap to the tax season in 2020-2021.

Here’s your guide to the new IRS Form 1099-NEC (NonEmployee Compensations).

If you want to e-file 1099-NEC or looking for more information on how to e-file 1099-MISC form for 2020-2021, you can start by selecting the forms here.

The New 1099-NEC Form 

Starting this tax season, all businesses as specified by the IRS must report all non-employee compensations and payments made to non-employee workers, such as independent contractors, vendors, and more, on the 1099-NEC form. 

Businesses or Trade Reporting Only

The non-employee compensations or NEC deals with business or trade payments only.  Personal payments are not reportable here.

Businesses That Must Report with 1099-NEC

According to the IRS, organizations that are engaged in a business or trade for profit or gain are required to report any payments made in the course of their business or trade. Even non-profit organizations are required to report on the form 1099-NEC since these organizations are also involved in a trade or business.

Businesses that must report with the 1099-NEC form for 2020-2021

• For-profit/gain businesses and organizations 
• Trusts of qualified pension(s) or profit-sharing plans of employers
• Nonprofits 
• Federal, state, or local government agencies
• Organizations exempt from tax as specified under section 501(c) or 501(d)
• Farmers’ cooperatives which are exempt from tax as specified under section 521
• Fixed investment trusts that are widely held

Payments that Do Not Have to Be Reported on the 1099-NEC Form

Some payments, even though they may be taxable to the recipient, do not have to be reported on the 1099-NEC Form. 

Take a look at all the payments exempted from reporting on the 1099-NEC Form, according to the IRS

• Payments to corporations (this includes limited liability companies (LLC) that are treated as a ‘C’ or ‘S’ corporations).
• Payments made for the purchase of merchandise, telegrams, telephone, freight, storage, and items.
• Rent payments made to real estate agents or property managers. Please note that the real estate agent or property manager in the subject must use Form 1099-MISC to report the rent paid over to the property owner.
• Wages paid to employees of your organization
• Military differential wage payments made to employees in the Armed Forces or other uniformed services (while they are on active duty) 
• Business travel allowances paid to employees.
• Cost of current life insurance protection 
•  Distributions from Retirement or Profit-Sharing Plans, Pensions, IRAs, Annuities, Insurance Contracts, and others (find more on https://www.irs.gov/) 
• Payments to tax-exempt organizations, such as tax-exempt trusts, IRAs, HSAs, Archer MSAs, Coverdell ESAs, and ABLE (529A) accounts, the United States, a state, the District of Columbia, a U.S. possession, or a foreign government.
• Payments made to/for homeowners from the HFA Hardest Hit Fund or similar state program (report on Form 1098-MA).
• Compensation for injuries or sickness by the Department of Justice as a public safety officer disability or survivor’s benefit.
• Benefits for surviving dependents of a deceased public safety officer as the direct and proximate result of a personal injury sustained in the line of duty.
• Compensation for wrongful incarceration for any criminal offense for which there was a conviction under federal or state law.

How to e-File 1099-NEC Form

You have to file a 1099-NEC Form if you have made any payment(s) to an individual for an amount of at least $600 (or more) in the course of your business for the following. 

• Services performed by someone who is not an employee of your organization (including parts and materials) 
• Cash payments for the purchase of fish (or other aquatic life) from anyone engaged in the trade or business of catching fish 
• Payments made to an attorney

Note

Businesses that have withheld any federal income tax (report in box 4) of any individual should file 1099-NEC forms for each of those individual(s) under the backup withholding rules regardless of the amount of the payment.

As a responsible business owner, make sure that you report every payment made in the proper box in the form because the IRS uses this information to determine whether the recipient has properly reported the payment.

You can find more detailed instructions about the 1099-NEC form in the official IRS portal here.

When to e-File 1099-NEC Form

The due date for 1099-MISC has been brought forward from 28^th February 2021 to 31^st January 2021. This change also eliminates the automatic 30-day extension for forms that include non-employee compensations according to the PATH Act, P.L. 114-113, Div. Q, sec. 201.

Be prepared to e-File 1099-NEC forms before 31^st January 2021. Please note that the 31^st of January 2021 is a Sunday, so you will have to postmark and file it on or by the succeeding business day, which is the 1^st of February 2021.

If you’re finding it hard to create your forms or validating your information or bulk filing your 1099-NEC or 1099-MISC forms, Tax1099 can help you out. Tax1099 is a multi-tool integrated, state, and federal compliant e-filing platform, which helps you easily e-file 1099-MISC and 1099-NEC forms on our secure server. Just an FYI, TAX1099 is an IRS approved e-filing platform and a two-time ‘Accountex User Favorite’ award winner. 

So, you can be assured knowing that your forms are filed with a globally recognized platform. We’re trusted by 150,000+ businesses like you and vouched by business news leaders like Forbes, Business Insider, Entrepreneur, and Inc. and accounting and bill management tools like Zoho and Bill.com

No matter your business size or type, you can utilize the effective and secure e-filing services of Tax1099 this tax season.