Understanding Form 1099-NEC
New for 2020: Beginning with tax year 2020, use Form 1099-NEC, Nonemployee Compensation, to report nonemployee compensation payments. These payments are no longer reported on Form 1099-MISC, Miscellaneous Income
Trade or Business Reporting Only
Report on Form 1099-MISC or Form 1099-NEC only when payments are made in the course of your trade or business. Personal payments are not reportable. You are engaged in a trade or business if you operate for gain or
profit.
However, nonprofit organizations are considered to be engaged in a trade or business and are subject to these reporting requirements.
Other organizations subject to these reporting requirements include trusts of qualified pension or profit-sharing plans of employers, certain organizations exempt from tax under section 501(c) or 501(d), farmers’ cooperatives that are exempt from tax under section 521, and widely held fixed investment trusts. Payments by federal, state, or local government agencies are also reportable.
Exceptions: Some payments do not have to be reported on Form 1099-MISC or Form 1099-NEC, although they may be taxable to the recipient. Payments for which a Form 1099-MISC or Form 1099-NEC is not required include payments to a corporation (including a limited liability company (LLC) that is treated as a C or S corporation). But see Reportable Payments to corporations, later
Form 1099-MISC, Miscellaneous Income, Reporting
Filing due date. Form 1099-MISC is due to the IRS by February 28 of the following year if filing by paper, or March 31 if filing electronically. The due date for furnishing statements to payees is January 31 of the following year.
Who must file? File Form 1099-MISC, Miscellaneous Income, for each person to whom you have paid during the year:
• At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest,
• At least $600 in:
– Rents,
– Prizes and awards,
– Other income payments,
– Medical and health care payments,
– Crop insurance proceeds,
– Generally, the cash paid from a notional principal contract to an individual, partnership, or estate,
– Payments to an attorney. See Payments to Attorneys, later,
– Any fishing boat proceeds,
– Section 409A deferrals, or
– Nonqualified deferred compensation.
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In addition, use Form 1099-MISC to report that you made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment. Withholding. You must also file Form 1099-MISC for each person from whom you have withheld any federal income tax under the backup withholding rules regardless of the amount of the payment.
Gusto: The All-In-One People PlatformForm 1099-MISC and Form 1099-NEC Reporting
Reportable Payments to Corporations on Form 1099-MISC
The following payments made to corporations generally must be reported on Form 1099-MISC.
• Medical and health care payments,
• Gross proceeds paid to an attorney, and
• Substitute payments in lieu of dividends or tax-exempt interest.
Form 1099-NEC, Nonemployee compensation, Reporting
Filing due date. Form 1099-NEC is due to the IRS and the payee by January 31 of the following year, regardless of how it is filed.
Who must file? File Form 1099-NEC for each person to whom you have paid at least $600 during the year for:
• Services performed by someone who is not your employee (including parts and materials),
• Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business
of catching fish, or
• Payments to an attorney. See Payments to Attorneys,
later.
Withholding. You must also file Form 1099-NEC for each person from whom you have withheld any federal income tax under the backup withholding rules regardless of the amount of the payment.
Reportable Payments to Corporations on Form 1099-NEC.
The following payments made to corporations generally
must be reported on Form 1099-NEC.
• Fish purchases for cash,
• Attorneys’ fees, and
• Payments by a federal executive agency for services (vendors).
Payments to Attorneys
The term “attorney” includes a law firm or other provider of legal services. Attorneys’ fees of $600 or more paid in the course of your trade or business are reportable on box 1 of Form 1099-NEC.
Gross proceeds paid to attorneys. Report in box 10 of Form 1099-MISC payments that:
• Are made to an attorney in the course of your trade or business in connection with legal services, for example, as in a settlement agreement,
• Total $600 or more, and
• Are not reportable by you in box 1, Form 1099-NEC.
Payments to corporations for legal services. The exemption from reporting payments made to corporations does not apply to payments for legal services. Therefore, you must report attorneys’ fees (in box 1, Form 1099-NEC) or gross proceeds (in box 10, Form 1099-NEC) as described earlier to corporations that provide legal services.
Penalties
If you fail to file correct information returns and/or furnish correct payee statements by the due date and you cannot show reasonable cause, you may be subject to a penalty. The penalty for late filing or furnishing within 30 days of the due date is $50 per return, with a maximum penalty of $565,000. Taxpayers who show intentional disregard of the filing requirements can be assessed a penalty of $560 per return, with no maximum amount of penalties.
A penalty for failure to file a correct information return is separate from the penalty for failure to furnish the correct payee statement. For example, if you fail to file a correct Form 1099-MISC with the IRS and don’t provide a correct Form 1099-MISC statement to the payee, you may be subject to two separate penalties.
As always, should you have any questions or concerns regarding your tax situation please feel free to contact us.
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