New IRS Reporting Roles for Independent Contractors
The Internal Revenue Service (IRS) has introduced a new form to report compensation paid to nonemployees. For tax year 2020, taxpayers must now use Form 1099-NEC to report payments for services of $600 or more made to nonemployees in the ordinary course of business. These payments were previously reported using Form 1099-MISC (the 1099-MISC will still need to be filed for other forms of payments such as royalties and rent). Nonemployees include independent contractors, third-party consultants, and attorneys who are not employed by the business. A business must issue a separate Form 1099-NEC for each nonemployee to whom it has paid at least $600 cumulatively during 2020 for services performed.
Watch out for several potential pitfalls:
- Forms 1099-NEC are due to the IRS and the recipient by Jan. 31 (for tax year 2020, the deadline is Feb. 1, 2021, as Jan. 31 is a Sunday), whereas the Form 1099-MISC filing deadline remains March 31 for electronic filers.
- The IRS will not grant an automatic 30-day extension for filing Form 1099-NEC. However, a taxpayer may still apply for a non-automatic extension in the event of hardship.
- Form 1099-NEC will not be included in the IRS 1099 Combined Federal/State Filing Program (CF/SF), through which the IRS will forward information from several key forms to the appropriate states. Because Form 1099-NEC will not be covered by the CF/SF, businesses will need to keep an eye on state filing requirements and deadlines to properly report nonemployee compensation.
Please contact one of the authors listed here or your regular AT attorney should you have any questions about filing obligations in this regard.