1099 form changes for 2021

2021 is kicking off with some changes to the “Non-Employee Compensation” (NEC) 1099 forms. For the calendar year 2020, the requirements for reporting all NEC will include a new form, the 1099-NEC.

The 1099-NEC form was created to separate the 1099-MISC, Box 7 forms. Businesses will need to be prepared to use the new form as well as the revised 1099-MISC. Here is a summary of the changes you will see:

  • All amounts previously placed in the 1099-MISC Box 7 ($600 or greater) will now be reported in Box 1 on the 1099-NEC.
  • Other amounts previously reported on the 1099-MISC may be reported in a new box. At least $600 in:
    • Rents (box 1)
    • Prizes and awards (box 3)
    • Other income payments (box 3)
    • Generally, the cash paid from a notional principal contract to an individual, partnership, or estate (box 3)
    • Any fishing boat proceeds (box 5)
    • Medical and health care payments (box 6)
    • Crop insurance proceeds (box 9)
    • Payments to an attorney (box 10)
    • Section 409A deferalls (box 12) or
    • Nonqualified deferred compensation (box 14)
  • Form 1099-NEC is due to recipients and the IRS by January 31st (February 1st for 2021 since the 31st falls on a Sunday). 1099-MISC forms must be submitted to the IRS by February 28th. The recipient due date varies based on the type of transaction (please visit https://www.irs.gov/pub/irs-pdf/i1099gi.pdf for information on the due dates).

Filing Requirements

According to IRS instructions, if the following four conditions are met, you must generally report a payment as NEC:

  1. You made the payment to someone who is not your employee.
  2. You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations).
  3. You made the payment to an individual, partnership, estate, or in some cases, a corporation.
  4. You made payments to the payee of at least $600 during the year.

The following are some examples of payments that would be reported in box 1 of the 1099-NEC:

  • Profession service fees, such as fees to attorneys, accountants, architects, contractors, engineers, etc.
  • Fees paid by one professional to another, such as fee-splitting or referral fees.
  • Payments by attorneys to witnesses or experts in legal adjudication.
  • Payment for services, including payment for parts or materials to perform the services.
  • Exchanges of services between individuals in the course of their trade or businesses.
  • Benefits, commissions, prizes and awards paid to nonemployees.

Make sure you have all your vendor W-9s on file and review all vendor activity and that your accounting software is updated to appropriately flag vendors and transactions with the correct reporting form. Failure to comply can lead to hefty penalties and fees. Have questions or not sure where to start, send me a message!

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