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This goes into effect in 2020. So, for my subcontractor clients used to getting a form 1099-MISC at year end, you will be seeing this new form at the beginning of 2021 when the 2020 forms are filed. And for companies issuing 1099s to subcontractors, you will be issuing the 1099-NEC at the beginning of 2021 for 2020.
A brief history. The 1099-NEC is actually an old form that was used to report Non-Employee Compensation, but it was retired decades ago. It used to look like this.
But, the IRS started to use The 1099-MISC form to report income in many different categories including Non-Employee Compensation. It has been a catch-all.
This is what that form looked like in 2018. Please note box 7.
Here is an excerpt from the new 1099-MISC instructions. You will notice that Non-Employee Compensation is no longer on this list.
File Form 1099-MISC, Miscellaneous Income, for each person in the course of your business to whom you have paid the following during the year:
• At least $10 in royalties (see the instructions for box 2) or broker payments in lieu of dividends or tax-exempt interest(see the instructions for box 8).
• At least $600 in:
1. Rents (box 1);
2. Prizes and awards (see the Box 3. Other Income);
3. Other income payments (box 3);
4. Generally, the cash paid from a notional principal contract to an individual, partnership, or estate (box 3);
5. Any fishing boat proceeds (box 5);
6. Medical and health care payments (box 6);
7. Crop insurance proceeds (box 9);
8. Payments to an attorney (box 10) (See Payments to attorneys, later);
9. Section 409A deferrals (box 12); or
10. Nonqualified deferred compensation (box 14).
You must also file Form 1099-MISC for each person from whom you have withheld any federal income tax (report in box 4) under the backup withholding rules regardless of the amount of the payment.
Trade or business reporting only. Report on Form 1099-MISC only when payments are made in the course of your trade or business. Personal payments are not reportable.
Here is an excerpt from the new 1099-NEC instructions.
File Form 1099-NEC, Nonemployee Compensation (NEC), for each person in the course of your business to whom you have paid the following during the year:
• At least $600 in:
1. Services performed by someone who is not your employee (including parts and materials) (box 1);
2. Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish (box 1); or
3. Payments to an attorney (box 1). (See Payments to attorneys, later.)
You must also file Form 1099-NEC for each person from whom you have withheld any federal income tax (report in box 4) under the backup withholding rules regardless of the amount of the payment.
Here are the new 1099-MISC and 1099-NEC.
Please remember, this goes into effect in 2020, NOT 2019.
Questions? Concerns? Call me on (732) 673-0510.
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Please reach out to me without hesitation with any tax, business or
accounting question, and to schedule a consultation.
Tax Laws are complex.
It is very easy to make mistakes that can incur penalties.
Do you have a Tax, Accounting or Business Question?
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Remember,
“If We Aren’t Working For You, Then You Aren’t Working At Your Best”
Chris Whalen, CPA
(732) 673-0510
81 Oak Hill Road
Red Bank, NJ 07701
www.chriswhalencpa.com
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