Though the 1099-NEC was revived to simplify year-end filing, there’s one aspect that will make things more complicated for your finance team.
IRS recently released Publication 1220, Specifications for Electronic Filing of Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G for Tax Year 2020. And it includes a notable distinction between submitting 1099-NEC and other 1099s.
No combined filing
In the publication, the Service doesn’t include Form 1099-NEC in its 1099 Combined Federal/State Filing (CF/SF) Program for 2020.
That means any 1099-NECs you file electronically using the Service’s FIRE System won’t automatically be forwarded to states. Your finance team will have to take care of them separately.
Note, though, that the 1099-MISC is still part of the CF/SF program. In fact, you can share with your team that the forms included for 2020 are:
- 1099-G 1099-INT
- 1099-R, and
Despite the majority of 1099s being included in the combined filing program, it’s clear your finance team will have to devote some extra effort to separately filing 1099-NECs with states this coming year-end. So, it’d be smart for them to start developing a solid plan now.
4 key considerations
Here are a few things you should encourage them to consider:
1. The research: As your team knows, different states have different requirements for filing 1099s. Some don’t require your company to send any of them; others mandate you file all of them; others still want just the 1099s that report withholding.
While year-end’s still a few months out, your finance team should make a list of all the states that are relevant to your company. Then they can dig in and figure out what each of their individual requirements are.
2. The who: After, your team must consider who will handle the additional state filing. Should the job be split up equally between staffers? Or would it make more sense to designate a specific staffer or two to handle the task?
Estimating how many labor hours it’ll take, based on how many forms you have to file with different states, could help fuel your decision here.
3. The when: Since filing with states requires another step in the year-end process, your team should think about when they’ll file with states (at the same time as IRS filings, after IRS filings, etc.).
Most states’ deadlines mimic the federal deadlines, so this will come down to your team’s preference. They may find it easier to handle returns with IRS first, then worry about states later. Or, oppositely, they may want to process 1099s for IRS and the state in tandem. The key is to come up with one set process, so nothing gets missed.
4. The alternative: Of course, if that extra work is something your company wants to avoid altogether, it can look to external vendors that offer 1099 filing services.
Along with saving your team a lot of time, passing the task to a trusted service provider could lower your risk of year-end filing errors that spur costly penalties,