Form 1099-NEC Revived for Separate Reporting of Nonemployee Compensation

Form 1099-NEC, Nonemployee Compensation, is expected to return in 2020 after a 38-year absence. Taxpayers will use the form to report certain payments currently reported  on Form 1099-MISC, Miscellaneous Income. The IRS expects Form 1099-NEC to resolve some timing issues involved in submitting Form 1099-MISC.

Reporting Nonemployee Compensation

Taxpayers generally must use Form 1099-MISC to report payments of $600 or more made by a trade or business in exchange for performance of services by nonemployees. These payments include:

  • fees;
  • commissions;
  • prizes;
  • awards; and
  • other forms of compensation for services.

Payors would use the new Form 1099-NEC, instead of Form 1099-MISC, to report these nonemployee compensation items. Form 1099-NEC would also be used to report direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment.

Why Replace 1099-MISC for Non-Employee Compensation?

In years before enactment of the Protecting Americans from Tax Hikes Act (PATH Act), Taxpayers were able to file one Form 1099-MISC to report nonemployee compensation as well as other miscellaneous income items by February 28 (March 31 if filing electronically). However, in 2015, the PATH Act accelerated the due date for reporting nonemployee compensation from February 28 to January 31, for both paper and electronic filing. The PATH Act also eliminated the automatic 30-day filing extension for forms that include nonemployee compensation.

As a result, taxpayers have had to separate 1099-MISC forms with nonemployee compensation from those without it. If a taxpayer submitted a 1099-MISC that included nonemployee compensation after January 31, along with other forms not containing nonemployee compensation, the IRS might inadvertently treat all submitted forms—including those not reporting nonemployee compensation—as  late returns.

For its part, the IRS has had to analyze the Forms 1099-MISC it received to determine the proper due date and apply late filing penalties appropriately.

The IRS is reinstating Form 1099-NEC to alleviate these issues.

Features of Form 1099-NEC

Form 1099-NEC is not a new form, but the revival of a form last used in 1982. The 1982 version of Form 1099-NEC contained only one box—fees, commissions, and other compensation—in addition to identification information.

In addition to taxpayer identification information, the draft 2020 Form 1099-NEC contains boxes for:

  1. nonemployee compensation, currently line 7 of the Form 1099-MISC;

Comment: This box would also be used to report cash received from the sale of fish by a payee in the business of catching fish.

  1. direct sales of $5,000 or more of consumer products, currently line 9 of Form 1099-MISC;
  2. federal backup withholding; and
  3. three boxes for state tax information.

Comments Requested

The IRS is looking for taxpayer input before creating the final Form 1099-NEC. The agency has posted a draft 2020 Form 1099-NEC on its website and is requesting comments on the draft form.

By Robert Recchia, J.D., M.B.A., C.P.A.

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CCHTaxGroup

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