Tax season is here and the IRS is implementing a new Form 1099-NEC for the 2020 tax year. Here is everything you need to know about the IRS requirements for your business.
What is 1099-NEC?
NEC stands for nonemployee compensation. Form 1099-NEC allows employers to report payments made to nonemployees or independent contractors. Employers need to file this form with the IRS and send copies to all of their recipients by Febraury 1, 2021.
Think back to any renovations you made, jobs you hired out, or other services you had performed. So maybe you hired an independent contractor–do you need to file Form 1099-NEC and send them a copy? Odds are, you do. If you paid a nonemployee $600 or more in the 2020 tax year, this form is for you.
Is This A New Form?
Yes and no. The 1099-NEC is an old form, but it was last used in 1982. The IRS is bringing this form back to simplify things.
Previously, employers could use Form 1099-MISC to report nonemployee compensation.
Due to tax law, the 1099-MISC became an ineffective document. Without going too far into the weeds regarding legislation, different sections of the form were due at different times, and the IRS had to make modifications.
Bringing back the 1099-NEC was the best solution. Instead of having to submit the 1099-MISC twice at two different times—and possibly creating errors due to duplicate forms, employers like you will have to use one form or the other.
Which Form Do I Use?
If you paid an nonemployee $600 or more, you will need to file a 1099-NEC. This amount can include fees, commissions, bonuses, and even benefits.
If you answer “yes” to all the following four questions, you will need to file a 1099-NEC:
Did you pay a nonemployee or independent contractor?
Was this payment made for services you received on behalf of your business?
Was this payment made to either a person, partnership, estate, or corporation?
Was the payment $600 or more?
There are two quick caveats we need to go over. Even if you didn’t answer in the affirmative to all the above questions, you might still need to file a 1099-NEC. If you paid at least $10 in royalties OR withheld any federal income tax as part of the backup withholding rules (regardless of the total amount you paid out), then you will also have to file a 1099-NEC.
E-File Form 1099-NEC Easily with 123PayStubs
E-Filing the 1099-NEC can be as easy. Forgetting to keep track of your payments is one thing that can complicate your filing process and cause major headaches for your business. To make it effortless, document every payment you make in the form of pay stub. At the end of the year, you’ll have all those payments on the record and be able to file Form 1099-NEC with 123PayStubs.
123PayStubs is proud to be the first pay stub generator to offer e-filing. This solution also supports Form W-2 and Form 1099-MISC for 2020 tax year.
Checkout this video for more instructions on e-filing Form 1099-NEC:
Still have questions? Here are some frequently asked questions about Form 1099-NEC.