Important Changes to 1099 Filing Process
December 9, 2020
The IRS has made changes to the annual 1099 filing process that most employers have become accustomed to. These changes will be in effect for the 2020 tax year and employers can expect a new process and set of forms to complete. This reporting change comes alongside increased penalties for failure to file and/or provide both 1099 forms – these fees can be as high as $500 per payee and $250 per copy not submitted to the IRS.
Form 1099-NEC vs. Form 1099-MISC
The change does not remove the old Form 1099-MISC but instead creates the new Form 1099-NEC. This new form will be filed starting in January 2021 to report payments that have previously been reported on Box 7 of Form 1099-MISC. These payments include “nonemployee compensation” which covers a wide range of potential payments.
Given most businesses are likely to file both types of forms, it is important to highlight the distinction between the two and understand the applicable uses for each. The summary table below provides the general requirements for the upcoming tax season:
|Responsibilities||Form 1099-NEC||Form 1099-MISC|
|Type of Proceeds to Report||Payments to non-employees for services in the course of your business that total $600 or more throughout the year||Rents, royalties, prizes, other income, fishing boat proceeds, medical care payments, crop insurance proceeds, and payments made to an attorney|
|Filing Deadline||Must be sent to IRS and recipient by February 1, 2021 (e-file and paper file)||Must be sent to recipient by February 1, 2021; sent to IRS by March 31, 2021 (e-file) or March 1, 2021 (paper file)|
|E-File Requirement||If you file 100 or more forms per tax year the Form 1099-NEC must be electronically filed||If you file 100 or more forms per tax year the Form 1099-MISC must be electronically filed|
|Federal/State Combined Filing||No, IRS will not automatically send Form 1099-NEC to states; separate filing with states required as needed||Yes, IRS will send Form 1099-MISC to states as required|
|Tax Years Applicable||Applicable for tax year 2020 and later to report non-employee compensation only||Applicable for tax years 2019 and earlier to report non-employee compensation; payments for other proceeds continue to use in tax year 2020 and later|
The Bottom Line
The types of payments that have historically required additional tax reporting will not go away but will change this year. If you have previously been subject to filing Form 1099-MISC, you will likely be required to file Form 1099-NEC and should ensure that the appropriate breakout of payments adheres to the new reporting procedures.
Aprio is continuously monitoring updates from the IRS that could affect your taxes to make sure our clients are always informed and compliant. We’ll keep you up to date on the developments that could affect your personal and professional bottom lines. Schedule a meeting with Aprio today.
About the Author
Mitchell is the partner-in-charge of Aprio’s Tax practice as well as the Technology & Biosciences group. He has been a partner since 1990 with Aprio, which is the largest Georgia-based tax, accounting and consulting firm. Mitchell works with companies in the software, gaming, clean tech, financial technology (FinTech), health care IT, processing, biosciences (biotech and medical device) and manufacturing industries. Whether a company is pre-revenue, starting up, growing or preparing for a liquidity event, Mitchell works with them to maximize their potential at each stage. He is known for promoting research, innovation and entrepreneurship by enabling companies to be successful, regardless of where they are in their business lifecycle.