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1099-NEC Filing Requirements for Non-Employee Compensation

12.17.20

In the effort to reduce fraud stemming from 1099-MISC forms in recent years, the Internal Revenue Service resurrected the Form 1099-NEC for those reporting non-employee compensation in 2020. Although the IRS retired the 1099-NEC in 1982, it is bringing it back to improve reporting and compliance.

Non-employee compensation is generally defined as payment(s) to independent contractor. Non-employee compensation payments are generally made to individuals (or entities) on a contract basis to complete a project or assignment. This includes independent contractors, gig workers or self-employed individuals. Prior to 2020, the payments were generally reported in box 7 of a 1099-MISC form.

With the 2020 roll-out of Form 1099-NEC, here are some key considerations subject to 1099 reporting requirements:

  • Reporting data for the new Form 1099-NEC will not be included in the Combined Federal/State Filing (CF/SF) program. So if you are reporting recipients who reside in states that require submission of Form 1099-NEC information, you must submit a separate state filing in the format required by each jurisdiction.
  • Some transactions may have to be reported twice on Firm 1099-MISC and 1099-NEC. There are potential issues with (i) state filings and withholding; (ii) state e-filing conformity; and, (iii) composite filing requirements.
  • Employee vs. Independent Contractor. Employers must review their workers’ status (for legal determination). California-based employers must apply the ABC Test to determine an employee’s status.
  • Specific rules apply to so called composite recipients with 1099-NEC and 1099-MISC filing requirements; and,
  • Additional considerations need to be taken for multilevel marketing filers with significant number of Form 1099-MISC.

The IRS may assess significant penalties and interest for providing incorrect statements or for intentionally disregarding the new 1099-NEC filing requirements.

Late filing of mandatory 1099s could lead to penalties ranging from $50 to $550 per 1099.

 Penalty per Form  Length of Delay
 $50  More than 30 days late 
 $110   More than 30 days late but before August 1st, 2020 
 $270   Filing on or after August 1st, 2020
 $550  Intentionally neglecting to file 

 

1099 Deadlines for 2020 

The February 1st filing/reporting deadline only applies to Form 1099-NEC where Copy A and Copy B should be furnished to the IRS and contractor respectively on the same date.  

The filing due date for other Forms 1099 and 1096 is March 1, 2021 (if filing by paper) and March 31, 2021 (if filing electronically). 

 Form  1099 Due Date to Recipients  Due to IRS By Mail  Due to IRS E-Filing
 1099 NEC   February 1, 2021   February 1, 2021   February 1, 2021 
 1099-MISC 
 (No Data in Boxes 8 or 10) 
 February 1, 2021   March 1, 2021   March 31, 2021 
 1099-MISC 
 (With Data in Boxes 8 or 10) 
 February 16, 2021   March 1, 2021   March 31, 2021 
 1099-B & 1099-S   February 16, 2021   March 1, 2021   March 31, 2021 
 1099-INT   February 1, 2021   March 1, 2021   March 31, 2021 
 1099-DIV   February 1, 2021   March 1, 2021   March 31, 2021 
 1099-R   February 1, 2021   March 1, 2021   March 31, 2021 

 

Note: Since January 31 and February 28 take place on a Sunday, the 2021 filing deadline is February 1, 2021, and March 1, 2021, respectively. 

As you prepare for the 2020 tax season, connect with your BPM tax advisor to determine how to report any independent contractors within your organization.