As a reminder, businesses are required to issue a 1099 to non-employees who provide services in excess of $600. Previously, these payments were reported in Box 7 on form 1099-MISC. Beginning with the 2021 filing season, these payments will now be reported on a separate form: 1099-NEC. Form 1099-MISC will still be used to report payments for rents, royalties, awards and other payments. Be aware of this change when ordering forms, as you’ll likely need fewer 1099-MISC.
When are these forms due?
Form 1099-NEC will be due January 31, 2021 regardless of filing electronically or via paper.
Form 1099-MISC is due February 28, 2021 (or March 31 if filing electronically).
Who should receive a 1099-NEC?
Any person, partnership, or LLC to whom you paid $600 or more during the year for services provided. Generally, you are not required to issue 1099s to corporations.
How do I know the entity type of a vendor?
The best course of action to determine whether or not your vendors are incorporated is to request Form W-9 from each vendor. This allows the vendor to indicate their tax entity type, as well as provide you with the correct name, address, and tax ID number.
Are there exceptions to the rule?
The exemption from reporting payments to corporations does not apply to payments for legal services. Payments to an attorney for legal services should be reported in Box 1 of Form 1099-NEC. Gross proceeds from a settlement that are paid to an attorney are reported in Box 10 of 1099-MISC.
Payments to a tax-exempt organization are exempt from reporting.
Payments made via credit card are not required to be reported via 1099. Instead, the credit card company reports payments on 1099-K.
Payments to current employees should not be reported on 1099s. If paying any type of vehicle, travel or other allowance, these should be reported on Form W-2.
Review vendor records now to ensure you have accurate and complete information and to avoid chasing information in January.
Most accounting software systems allow you to track vendors and payments that are 1099 eligible. If you are not currently doing this, reach out to your RubinBrown contact for assistance.
Instructions for Form 1099-MISC and 1099-NEC can be found here: https://www.irs.gov/instructions/i1099msc
Contact RubinBrown’s Entrepreneurial Services Group for more information.
Readers should not act upon information presented without individual professional consultation.
Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.
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As if 2020 hasn’t brought enough changes, the Internal Revenue Service has also provided a change to the 1099-MISC form.