What You Should Know About the New 1099 Form For 2020

VIRTUAL Estate Planning and Business Planning in DFW and Throughout Texas and California

By Amy June

Dec 28
How to deal with 1099s in 2020

The end of the year is tax time, and one of the most important steps in your company’s tax preparation is filing the proper tax forms for your workers. One tax form that often creates confusion for business owners is Form 1099.

Unlike traditional employees, who are issued a W-2, 1099s are used to report payments you made to independent contractors (ICs) over the course of the year. Because the rules for filing 1099s can differ depending on how much ICs were paid, how they were paid, and what business entity they use, dealing with 1099s can be tricky.

Filing 1099s for 2020 is going to be even more confusing than usual, as the IRS split 1099s into two separate forms: Form 1099-NEC to report nonemployee compensation and Form 1099-MISC to report miscellaneous service payments.

To help ensure you get your 1099s filed correctly and on time, here’s what you should know about the two new forms.

Filing Form 1099-NEC

If you paid an IC at least $600 during the year, you must report it on Form 1099-NEC. This includes commissions, fees, and other types of compensation for the work that an independent contractor performed for your company. There are four conditions for filing a 1099-NEC.

If you meet all of the following four conditions, you should file a 1099-NEC for that contractor:

●     You made a payment to someone who is not employed by your company.

●     The payment was made for services and not for merchandise or products.

●     You made the payment to an individual, partnership, or other unincorporated entity. Most payments to corporations (except attorneys or law firms) do not need to be reported on Form 1099.

●     You made payments to the IC totaling $600 or more during the year. If you paid them less than $600 total, you generally do not need to file a Form 1099-NEC.

Both the IRS and the independent contractor must receive copies of Form 1099-NEC no later than Feb. 1, 2021.

Filing Form 1099-MISC

If you made payments for miscellaneous services that were not nonemployment compensation, you must report them on Form 1099-MISC. The following types of payments are reportable on Form 1099-MISC:

1. Payments of at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest

2. Payments of at least $600 in:

●     Rents

●     Prizes and awards

●     Other income payments

●     Cash paid from a notional principal contract to an individual, partnership, or estate

●     Fishing boat proceeds

●     Certain medical and health care payments

●     Crop insurance proceeds

●     Payments to an attorney (other than fees for services)

●     Section 409A deferrals

●     Nonqualified deferred compensation

The recipient of the Form 1099-MISC must receive it no later than Feb. 1, 2021, and the IRS must receive it by March 1, 2021, if you are submitting it on paper. If you are filing it electronically, the IRS must receive it by March 31, 2021.

Take the Stress Out of Tax Time

Although dealing with all of the tax forms required by the IRS can be a hassle, you can eliminate most of the stress—and risk—involved by implementing sound business systems. We can support you in setting up an array of systems, not just for managing your finances and taxes, but for dealing with legal and insurance issues as well.

Additionally, when it comes to working with independent contractors, taxes aren’t your only concern. You’ll also need to pay close attention to ensure all your ICs are properly classified and have solid employment agreements in place. Meet with us today for trusted guidance on hiring, classifying, and paying your ICs.

We offer a complete spectrum of legal services for business owners and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer you a LIFT Your Life And Business Planning Session, which includes a review of all the legal, insurance, financial, and tax systems you need for your business. Schedule online today.