IRS is Giving Us Another Form 1099
The Internal Revenue Service is giving us another Form 1099. This new form is the 1099-NEC. And, the “NEC,” stands for Non Employee Compensation. Businesses or Payers must complete Form 1099-NEC to report any payment of $600 or more to an independent contractor.
No More Box 7 on Form 1099-MISC
Prior to the 2020 tax year, Form 1099-MISC would report payments to independent contractors totaling $600 or more in a calendar year. We are accustomed to seeing self-employment income reported in box 7 of the 1099-MISC. That will no longer be the case beginning with the 2020 tax year.
In fact, Form 1099-NEC will eliminate the need to accommodate different reporting deadlines as previously experienced with Form 1099-MISC. In addition, the 1099-NEC will be utilized indefinitely.
Form 1099-NEC is Actually Not New
This is actually a revival of sorts, because the IRS Form 1099-NEC hasn’t been used since the Reagan Administration. Now it no longer gets to enjoy retirement. Moving on, the “NEC,” stands for Non-Employee Compensation. Non-Employee Compensation is the same as independent contractor compensation.
Does Not Include Non-Self-Employment Income
Significantly , the IRS Form 1099-NEC helps with separating out self-employment income subject to self-employment tax from non self-employment income. Non self-employment income can include rents or prizes. That form of income does not require Social Security and Medicare contributions (self-employment tax). What a fantastic time-saving change for tax professionals! Adding Form 1099-NEC back into service is likely related to the large number of folks working as independent contractors for app-based services like Uber, Lyft, and Postmates.
Easier for IRS Enforcement
Seeing all self-employment income on one “form stack” will make it easier for IRS computer systems. This way they can compare the amounts reported on each Form Schedule C to the amounts reported on the new Form 1099-NEC by third party payers of income.
Shift in Responsibility
The new version of Form 1099 puts more responsibility on the payer of the income. Tax professionals, accountants, bookkeepers, and payroll clerks will have new responsibilities.
Master Working with Form Schedule C
Form 1099-NEC requires extra care when businesses are creating 1099s for subcontractors. Taxpayers receiving this new form will need to file a Schedule C. This is an opportunity for tax preparers to learn more about working with IRS Schedule C, click here to view the Pronto Tax School Schedule C Mastery Training Program. In addition, Pronto will be releasing its new Business Verified tax preparation course. This course will provide everything you need to feel comfortable and confident providing tax preparation and consulting for business tax clients.