Use Form 1099-NEC to Report Non-employee Compensation in 2020

If you’ve been in business more than 38 years, you may remember form 1099-NEC. Prior to 1982, this was the form you used to report non-employee compensation. Now the IRS is re-introducing this form to replace Box 7* on Form 1099-MISC. So, starting with 2020, you must file Form 1099-NEC if you have paid more than $600 to an independent contractor.

Here’s a look at the revamped form:

Distributing Copies of the Form

The form has 5 parts. Distribute them as follows:

• Copy A: The IRS
• Copy 1: State tax department, if applicable
• Copy B: Independent contractor
• Copy 2: Independent contractor
• Copy C: Keep in your business records

When to File the Form

Starting in 2021, you must distribute forms to workers and file Copy A of the form with the IRS by February 1.

When to Use Form 1099-MISC

Form 1099-MISC is still in use. Beginning with tax year 2020, you should file Form 1099-MISC for each person to whom you have paid the following in the course of your business during the year:

• At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
• At least $600 in the following:
  • Prizes and awards.
  • Other income payments.
  • Generally, cash from a notional principal contract to an individual, a partnership or an estate.
  • Any fishing boat proceeds.
  • Medical and health care payments.
  • Crop insurance proceeds.
  • Payments to an attorney.
  • Section 409A deferrals.
  • Nonqualified deferred compensation.

Let the Professionals Do It

PHB is one of the best Nashville CPA firms for business accounting and tax preparation. Give us a call today at 615-750-5537.

*In 2020, Box 7 on Form 1099-MISC is “Payer made direct sales of $5,000 or more of consumer products to a buyer (recipient) for resale.”