As a reminder, the IRS made changes to the 1099-MISC form by reviving the Form 1099-NEC. Beginning with the 2020 tax year the new 1099-NEC form will be used for reporting nonemployee compensation (NEC) payments. These payments were previously reported on Form 1099-MISC box 7 and will now be reported in Box 1 of Form 1099-NEC.
There are several parts of the new 1099-NEC form to take note of.
- Box 1 is where you key in the dollar amount of nonemployee compensation.
- Box 4 is used for any amount you held back to comply with backup withholding requirements.
- Boxes 5-7 are used to report any state withholding.
What is nonemployee compensation?
The IRS defines nonemployee compensation (NEC) in the 2020 Instructions for Forms 1099-MISC and 1099-NEC. If the following four conditions are met, you must generally report a payment as NEC. You 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.
Examples of nonemployee compensation that are now reported in box 1 of Form 1099-NEC include:
- Professional service fees, such as fees to attorneys (including corporations), accountants, architects, contractors, engineers, etc.
- Payment for services, including payment for parts or materials used to perform the services if supplying the parts or materials was incidental to providing the service.
- Director’s fees and other remuneration
Form 1099-NEC Other payments
In addition to nonemployee compensation, there are some other payments reported in box 1 of Form 1099-NEC.
- Prizes and awards for services performed by nonemployees
- Cash payments for fish
- Payments by a federal executive agency for services
- Gross oil and gas payments for a working interest
- Taxable fringe benefits for nonemployees
You must also file Form 1099-NEC for each person from whom you have withheld any federal income tax (report in box 4) under the backup withholding rules regardless of the amount of the payment.
Form 1099-NEC filing date?
Form 1099-NEC should be filed with the IRS on paper or electronically by January 31st of each year (February 1st in 2021). A copy of Form 1099-NEC should also be sent to your vendors and independent contractors by January 31st of each year (February 1st in 2021) There is no automatic extension available for the 1099-NEC form. The PATH Act, P.L. 114-113, Div. Q, sec. 201, accelerated the due date for filing Form 1099 that includes nonemployee compensation (NEC) from February 28 to January 31 and eliminated the automatic 30-day extension for forms that include NEC. Beginning with tax year 2020, use Form 1099-NEC to report nonemployee compensation.