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Due Feb. 1, 2021: Form 1099-NEC for tax year 2020

Tax Law and News Form 1099

2020 has been a whirlwind of change, which meant adapting to new ways to shop, attend school, and work. Many of your clients have transitioned from working in an office to working at home, while others worked reduced hours or lost their jobs entirely. Many needed to pick up side jobs, gig jobs, sales jobs, or temp work. As a result, clients will likely have income from new sources, and some of them will receive Form 1099-NEC, Nonemployee Compensation, and file a Schedule C for the first time.

What is Form 1099-NEC?

Starting in tax year 2020, Form 1099-NEC will be used to report non-employee compensation totaling more than $600 in a year paid to a non-employee for certain payments from the trade or business. Previously, business owners would file Form 1099-MISC with an amount in box 7 to report non-employee compensation.

For tax pros who have been around for a while, you might be familiar with Form 1099-NEC; it was used until 1982 when the IRS added box 7 to Form 1099-MISC and discontinued Form 1099-NEC to simplify filing. 

What is reported on Form 1099-NEC?

If the following three conditions are met, clients can report a payment as non-employee compensation:

  1. They made the payment to someone who is not their employee (including parts and materials).
  2. They made the payment for services in the course of their trade or business (including government agencies and nonprofit organizations).
  3. They made payments to the payee of at least $600 during the year.

The IRS explicitly calls out cash payments for fish (or other aquatic life) purchased from anyone engaged in the trade or business of catching fish, and payments to an attorney for professional service fees to be reported in box 1.

The separate instructions for filers/issuers for Form 1099-NEC are available in the 2020 instructions for Forms 1099-MISC and 1099-NEC.

When is Form 1099-NEC due?

If you prepare Form-1099s for any of your clients, the most significant change is the date the form is filed with the IRS. All 1099-NEC forms must be distributed to the recipients and filed with the IRS by Jan. 31 or the next business day, if the due date is on a weekend or holiday.  For tax year 2020, the form is due Feb. 1. Form 1099-MISC is still required to be distributed to the recipient by Jan. 31 and is due to the IRS by Feb. 28. By separating the due dates, the IRS effectively reduces confusion and hopes to combat fraud.

If the business fails to file on time, the penalty against the company varies from $30 to $100 per form ($500,000 maximum per year), depending on how long past the deadline the company issues the form. If a company intentionally disregards the requirement to provide a correct payee statement.

Comments (18) Leave your comment

  1. Hello,

    The 1099-NEC on the IRS website has 2021 on the form where I would expect to see 2020. Is there a 2020 form?

    1. Hi Alyz – Yes, you will have a penalty. If you file copies of 1099s late with the IRS, but within 30 days of the due date, then the IRS assesses a penalty of $50 per late 1099. Hope that helps, thanks.

  2. I am president of a small, tax-exempt nonprofit 501(c)(4). It is a voluntary association of property owners for raising funds and paying for road maintenance in our neighborhood. My understanding from your article is that we must send a Form 1099-NEC to any person or business that we hired for services exceeding $600. Is that correct?

    1. Hi Greg – Yes, any organization that meets the filing requirements is required to complete 1099s, regardless of tax-exempt status. You are required to issue a 1099 if you made a payment of $600 or more to someone who is not your employee. This can be an individual, partnership, vendor, or estate. You do not need to issue a 1099 to corporations you do business with. Your nonprofit organization will also need to file a 1096 with the government, which reports of all the 1099s you sent out.

      Thanks.

      1. Thank you for your previous reply! I neglected to mention insurance payments. Our nonprofit pays annual liability insurance premiums that cover our road association and its Board of Directors. If such premiums cumulatively exceed $600, does this type of payment require a 1099-NEC?

      2. Hi Greg – No, you do not need to issue a 1099-NEC to the insurance company for premiums. This form is to report non-employee compensation. If your insurance company is registered as a C corporation or an S corporation, you are not required to fill out this form.

  3. Will the 1099-NEC be filed with the Franchise Tax Board at the same time it is filed with the IRS? I know in California we must submit the 1099-NEC to them also. Thank you.

    1. Hi Gigi – A paper or electronic copy of the form 1099-NEC must be filed with FTB directly, even if you filed it with the IRS. For 2020, the due date is Feb. 28, 2021 for paper, and March 31, 2021 for electronic submissions. Hope that helps, thanks.

      1. I read the article. Made sure it is up to date (even bought 2021 to see if shows 1099-NEC) and it still only offers 1099MISC. I agree with others for the price it should be there.

  4. Hi Chrystal, thank you for the article on the new form.

    I’m confused about whether payments to attorneys for legal work should be reported on Box 10 of the 1099-MISC form or in Box 1 of the 1099-NEC form. Could you clarify please?

    Thank you.

    1. Hi Cheryl – thank you for your question.

      Payments to attorneys for legal service will be reported in box 1 of Form 1099-NEC.

      Payments for legal fees should be reported on Form 1099-NEC box 1. This would be any attorneys’ fees of $600 or more paid in the course of your trade or business. The IRS instructions that call out the term “attorney” includes a law firm or other provider of legal services.

      Gross proceeds, are amounts paid to attorneys as part of a settlement agreement and are reported in box 10 of Form 1099-MISC.

      Another nuance with attorneys and 1099s is that the exemption from reporting payments made to corporations does not apply to payments for legal services. Therefore, you must report attorneys’ fees (in box 1, Form 1099-NEC) or gross proceeds (in box 10, Form 1099-NEC) as described earlier to corporations that provide legal services even though that means that the attorneys’ fees are potentially reported twice.

      I hope this answers your question, thanks.

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