Beginning with the 2020 tax year, the IRS would require business taxpayers to report nonemployee compensation on the new Form 1099-NEC instead of on Form 1099-MISC. Businesses would need to use this form if they made payments totaling $600 or more to a nonemployee, such as an independent contractor.
Form 1099-MISC, Miscellaneous Income, is an information return that businesses use to report payments (e.g., rents and royalties) to nonemployees. Each payer must complete the Form 1099-MISC and send the copy of the Form by January 31 if during the tax year the payer pays $600 or more to a recipient. And the recipient should report all earnings on the tax return.
Form 1099-NEC is not a replacement for Form 1099-MISC. Form 1099-NEC, Nonemployee Compensation, is a form that solely reports nonemployee compensation. Form 1099-NEC is only replacing the use of Form 1099-MISC for reporting independent contractor payments. Prior to 2020, you would include nonemployee compensation in Box 7 on Form 1099-MISC.
If the following four conditions are met, a payment is classified as a nonemployee compensation and required to be reported on Form 1099-NEC.
The payment is made to someone who is not your employee;
The payment is made for services in the course of your trade or business (including government agencies and nonprofit organizations);
The payment is made to an individual, partnership, estate, or in some cases, a corporation; and
The payment is made to the payee of at least $600 during the year.
Like Form 1099-MISC, Form 1099-NEC includes the following information: Your name, address, and phone number; Your TIN (Taxpayer Identification Number); Recipient’s name, address, and TIN; Total nonemployee compensation; Federal and state income tax withheld (if applicable). And there are multiple copies of Form 1099-NEC you must distribute.
Please make sure to distribute the following copy to the right recipient before the deadline to avoid penalty:
Copy A: The IRS (by January 31)
Copy 1: State tax department, if applicable
Copy B: Independent contractor (by January 31)
Copy 2: Independent contractor (by January 31)
Copy C: Keep in your business records.
All information in this article is only for the purpose of information sharing, instead of professional suggestion. Kaizen will not assume any responsibility for loss or damage.
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