Question of the Week
What is Form 1099-NEC?
Happy Friday all!
We are barreling toward the end of the month and the next big tax deadline. And while filing season isn’t starting until February 12th this year, the deadline to submit forms to your independent contractors is February 1st. You’ll also notice something new (well, not new…most of us just haven’t encountered it) – Form 1099-NEC. Here’s what you need to know about that form.
Background
The IRS has brought back Form 1099-NEC when reporting self-employment income. You’ll use this this year instead of putting it on line 7 of your Form 1099-MISC, as you’ve done in the past.
The 1099-NEC is not a new form, but it hasn’t been used since 1982, which is why it may seem new to most of you. You will need to use this form if you’ve made payments totaling $600 or more to a nonemployee service provider, like independent contractors. Similarly, if you’re self-employed, you’ll likely have some of these coming your way if you were paid over $600 in nonemployee compensation.
The normal deadline for these forms in January 31st, but since that falls on a Sunday this year, you get an extra day. There are no extensions on the deadline unless your business meets certain hardship conditions, which you can find on the extension Form 8809.
Filling out the form
The IRS gives four conditions under which you must generally report a payment as nonemployee compensation:
- 1You made the payment to someone who is not your employee.
- You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations).
- You made the payment to an individual, partnership, estate, or, in some cases, a corporation.
- You made payments to the payee of at least $600 during the year.
In addition to fees paid to the service provider, nonemployee compensation can include benefits, commissions, prizes and awards for service performed by a nonemployee and the general catchall of “other forms of compensation for service performed for your trade or business by an individual who is not your employee.”
Additionally, you will need to file Form 1099-NEC
when you’ve paid an individual at least $10 in royalties, or
You have withheld any federal income tax under the backup withholding rules regardless of the amount of payments for the year to the nonemployee.
You’ll need the payee’s
- Name
- Address
- Taxpayer identification number (you can use their social security number or employer identification number)
- The amount that you paid them, as well as any federal or state tax withheld.
The easiest way to keep this information on file is by using Form W-9. I suggest getting this form at the beginning any contractor relationship that you anticipate will go above the $600 threshold. This step will prevent last-minute scrambling for the information a few days before the deadline.
While helpful, a W-9 is not required. You may incorporate a substitute Form W-9 into other business forms you customarily use. However, the certifications on the substitute Form W-9 must clearly state (as shown on Part II of the official Form W-9) that under penalties of perjury:
- The payee’s TIN is correct,
- The payee is not subject to backup withholding due to failure to report interest and dividend income,
- The payee is a U.S. person, and
- The FATCA code entered on this form (if any) indicating that the payee is exempt from FATCA reporting is correct.
Quote of the Week
“Funny how the new things are the old things.” – Rudyard Kipling
Task of the Week
Get on those 1099-NECs! You have until midnight on Monday to get them done and sent. You can download the PDF of the 1099-NEC, but do not print and file copy what you download from the IRS website. You will have to order forms from the IRS website or file online using the IRS Filing Information Returns Electronically (FIRE) system. You can also use a third party-provider like Yearli, efile4biz or your bookkeeping software like Quickbooks or Wave.