1099 MISC with NEC 2020 Changes: Did you made payments with a non-employee? Does the payment exceed $600? Then you require to report the payments as non-employee compensation to the IRS. Most of the tax payers filed non-employee compensation using 1099 MISC Box 7. In the 2020 tax year, the IRS released a new draft Form 1099 NEC to report non-employee compensation to the IRS.
Are you confused about reporting non-employee compensations in the 2020 tax year? Don’t worry! We’ll let you know about changes made in 2020 tax year to report non-employee compensation, reasons for the changes, benefits for the change and due dates for 2020 tax year.
What are the changes made on reporting 1099 MISC with NEC in 2020?
If you were working as a freelancer or for small business you hired an independent contractor, then you require to issue or receive a 1099 MISC. From past few decades, the tax payers used 1099 MISC Box 7 to report non-employee compensation paid to an independent contractor. 1099 MISC Form also reports all the miscellaneous income paid to an individual in a calendar year.
Due to this confusion was created to the tax payers when filing non-employee compensation through 1099 MISC Form. The redesigned 1099 NEC Form cleared the raised confusion by reporting only non-employee compensation directly to the IRS. The change created just modifies the uses of the Form.
How do you report 1099 MISC Box 7?
If you paid an independent contractor $600 in a calendar year on purpose of work done, then you require to report the payments to the IRS under non-employee compensation category. As the reporting process changed for the 2020 tax year, the payers can directly report non-employee compensation using revived 1099 NEC Form.
The tax payers report the non-employee compensation using Box 1 of the Form if the following conditions met:
- The amount paid to an individual contractor annually must exceed $600.
- The payments made must be with a non-employee.
- A non-employee may be an independent contractor, freelancer, individual person etc.
1099 MISC including NEC changes in 2020 reasons
The main reason for changing 1099 MISC including NEC are:
- PATH act 2015: Due to PATH Act 2015, the filing deadlines of 1099 MISC Box 7 and 1099 MISC non-box 7 payments changed. The deadline to file 1099 MISC with NEC changed from February 28th 2020 to January 31 2020. If the tax payers filing both the payments i.e. non-employee compensation and miscellaneous income, then they required to file the Form in two different deadlines. Due to this the tax payers were confused by dual filing deadlines. To clear this confusion created by PATH Act 2015, the IRS re-introduced 1099 NEC Form in the 2020 tax year. The change is only for filing process and the due dates remained same.
- Recheck: IRS doesn’t had time to recheck the submitted forms when reporting non-employee compensation and miscellaneous income through 1099 MISC Form. This leaded to fraudulent activities and fraudulent credit claims. To rescue the scams, the IRS revived old 1099 NEC Form which was used lastly in 1982 for the 2020 tax year.
- Unexpected penalties: If the tax payer filed non-employee compensation using 1099 MISC Box 7, by the deadline. If the same tax payer filed miscellaneous income using 1099 MISC Form, before the deadline. Due to insufficient time, the IRS considered the payments made by the taxpayer as late filing and imposed penalties. To clear the unexpected penalties imposed by the IRS, a separate Form 1099 Online NEC was introduced by the IRS.
Benefits for changes in 1099 MISC with box 7 to 1099 NEC
The following are the benefits for changes in 1099 MISC with Box 7 to 1099 NEC Form:
Direct reporting:
In the tax year 2020, the IRS changed the filing process of non-employee compensation to 1099 NEC Form. With the help of this change, the tax payers can directly report non-employee compensation in 1099 NEC Form without any mistakes. As the form only reports the non-employee compensation, there is no need to worry regarding boxes. The tax payers can enter the non-employee compensation in the Box 1 of the Form respectively.
Reduces fraudulent scams:
1099 NEC Form reduced the fraudulent scams created by 1099 MISC Form. Now, the IRS had enough time to recheck the submitted Forms and control the fraudulent credit claims.
Clears filing deadline:
Tax payers can have a clear view on filing deadlines. The two Forms 1099 MISC and 1099 NEC had two separate filing deadlines. By this, the tax payers can file the respective Form within the due dates to the IRS.
Filing 1099 NEC in 2020
In the tax year 2020, the tax payers must report non-employee compensations using 1099 NEC Form. The filing process of 1099 NEC Form in 2020 is given below:
- Firstly, you need check how many 1099 NEC Form you’re filing. If you’re filing more than 250 Forms, then you’re required to file electronically.
- After deciding to file the Form i.e. paper filing or e-filing, gather all the required information to file 1099 NEC Form.
- Information to file the form includes payer details, recipient details, TIN, non-employee compensation amount, state and federal tax withholding details.
- After entering the required information of the Form, recheck the entered information.
- Error filing may lead to backup withholding taxes. To avoid this, check the details in the form before submitting.
- If you’re paper filing, mail the copy A of the Form to the IRS within the due date.
- If you’re filing electronically, select the IRS authorized e-file provider site to submit the 1099 NEC Form to the IRS. E-file 1099 NEC with the IRS before the due date.
- Along with Copy A, you’re required to furnish Copy B of the Form to the recipient before crossing the deadline.
1099 NEC deadline 2020
Since you are filing 1099 NEC Tax Form for 2020 tax year, given below are the deadlines to furnish the copies:
Copy A of 1099 NEC Form to the IRS by February 1st, 2021.
Copy 1 of 1099 NEC Form to the state tax department if necessary.
The Copy B of 1099 NEC Form to the recipient by February 1st, 2021.
Copy C to the payee for future records.
Have got a clear information on 1099 NEC 2020 Form? Then report your non-employee compensations using 1099 NEC Form for the 2020 tax year. We are an IRS authorized e-file provider. Just login or signup with us within seconds and file your 1099 NEC Tax Form online. We provide you 256 bit security and the information entered in the form will be safe and secured.
