After months of hype and talk about the new 1099-NEC, it’s almost time for your A/P team to file these forms.
Of course, like most tax forms and IRS procedures, the 1099-NEC has a few quirks. And since this is the first year A/P’s filing the new 1099-NEC, you’ll want to ensure they’re aware of the finer points, so they can ace year-end reporting.
Check out the key considerations and nuances of Form 1099-NEC to pass along:
Who should get a 1099-NEC? IRS specifies that some of the most common payees are those who received at least $600 in payments:
- for services performed by worker(s) who aren’t employees at your company
- to attorneys (including law firms or other legal service providers), and
- to people from whom your company’s withheld any federal income tax under the backup withholding rules.
If A/P’s issuing a 1099-NEC for payments outside of these three broad categories, they may want to double-check that they’re using the correct 1099.
2. Software complications
Since this is a transition year, many tax or accounting software systems may not yet be equipped with a 1099-NEC flag for payees or be able to produce 1099-NEC-based reports, according to Accounting Today.
It’s a good idea to reach out to your software provider or tech support now to see if their software will be updated to accommodate 1099-NECs before year-end deadlines. Also, see whether your provider has a long-term plan for incorporating 1099-NECs into its features.
In the interim, tell A/P to try this hands-on approach from Accounting Today: If your company has payees who typically use 1099-MISC Boxes 1 or 3, implement a “Display Name” flag, like [Payee 1]: NEC and [Payee 2]: MISC. That way, when it’s time to file, A/P can easily download the 1099-MISC file and segregate payees who need a 1099-NEC.
3. State-by-state filing obligations
As mentioned, IRS excluded Form 1099-NEC from its Combined Federal/State Filing Program. That means if your state mandates 1099-NEC filing, A/P will have to do it separately from your IRS filing.
Be sure your staff accounts for the extra time to research state requirements and file with states, if necessary.
4. Corrections for old 1099-MISCs
Let’s say your A/P department needs to correct a Box 7 (nonemployee compensation) amount from a 2019 1099-MISC. Since the new 1099-MISC doesn’t include that same Box 7 anymore, how should they handle the correction?
According to IRS, corrections to 1099-MISC Box 7 for tax years 2019 and earlier should remain on the old 1099-MISC form. In other words, A/P shouldn’t correct a 2019 1099-MISC for nonemployee compensation with a 2020 1099-NEC. CFOs should take time to emphasize this point with A/P, so your company can get corrections right and avoid further penalties.
As you may know by now, 1099-NECs and 1099-MISCs don’t have identical due dates. And you’ll want your A/P staffers to ingrain the difference in their heads!
Paper and electronic 1099-NECs are due to IRS by Feb. 1, 2021. Paper 1099-MISCs are due by March 1, 2021, but electronically filed 1099-MISCs aren’t due until March 31, 2021.