CPA Chats: 1099-MISC and 1099-NEC Form Changes
I know I’ve touched on many topics that are Coronavirus and CARES Act related as that is in the forefront of so many of our minds. Obviously small businesses & individuals are affected in mass by this and are concerned about the tax and financial effects. I’m always glad to address those concerns.
However, the IRS has made some changes - non-CARES related that I feel like are important to touch on as well.
So, let’s chat about the 2020 changes for 1099-MISC forms and the introduction of the 1099-NEC form.
I don’t have many clients that aren’t either sending or receiving a 1099-MISC come tax time. As gig-economy work increases & people work more and more for themselves, this will only continue.
So, what has changed?
The IRS has done away with the 1099-MISC (BOX 7) for non-employee compensation and added it to its own form for 2020 which is the 1099-NEC. Box 7 has been used for reporting current and deferred compensation paid to independent contractors. The 1099-NEC replaces the Form 1099-MISC with box 7 data for the 2020 tax year (filed in 2021.)
Fun fact: the 1099-NEC was a form that was used in the past but done away with back in 1982. Who knew tax forms were like fashion - they eventually come back around.
Why did this change occur?
In 2015, the PATH Act changed the due date for 1099-MISC with box 7 data from March 31 to January 31. This is helpful for those who are reporting that income to be able to have the forms in time for filing taxes. However, all other Form 1099-MISC (non Box 7) were still due on March 31. As you can imagine, 2 deadlines for the same form is confusing and often led to 1099-MISC being counted as late in error.
What do I do?
If you’re on the receiving end of a 1099-MISC or the new 1099-NEC, be sure to bring the form and a record of your applicable business expenses and mileage to your CPA. This change primarily affects those who file and issue 1099s - using a different form. I’ve included a screenshot of the new form below - it’s basic and just separates that box 7 from 1099-MISC into its own form for simplicity.
Beginning with 2020 forms (filed in 2021), copies of your 1099-NEC must be distributed and/or postmarked by January 31. January 31, 2021 falls on a Sunday - so for 2021 the deadline will be February 1. A little note: you may need to file 1099-MISC and 1099-NEC for the same individual in some cases.
A few resources for you:
https://www.irs.gov/forms-pubs/about-form-1099-nec
https://www.irs.gov/forms-pubs/about-form-1099-misc
Here’s a screenshot of the new form: