Tax Tips Logo ImageISSUE:

Have you heard?  For 2020, you will not use Form 1099-MISC for fees paid to independent/outside contractors for services as we’ve done in the past.  There is a new Form 1099-NEC, Nonemployee Compensation.

 

SITUATION:

Idaho Theological Seminary (ITS) is a private college exempt under Internal Revenue Code section 501(c)(3) and 170(b)(1)(A)(ii).  They are not required to file Form 990 annually.

The ITS Accounting Team called to ask us about Form 1099-MISC for 2020.  “We’ve heard there might be some changes made to the form and we generally have about 12 to 15 independent contractors we send 1099-MISC to.  What’s going on?”

“Well,” we say, “you likely won’t report those payments on Form 1099-MISC going forward.”

“Yayy!” they exclaim.

“Not so fast,” we tell them.  “There is a new Form 1099-NEC (Nonemployee Compensation) that you will file instead.  And, the due date for filing these forms with the IRS is one month earlier than the 1099-MISC.”

“Ouch.  What else can you tell us about this NEC form?”

“Basically it has a box for amounts of $600 or more paid for services during the year (box 1) and a box for amounts withheld for federal and/or state taxes.  There are exclusions that are much the same as they were for the 1099-MISC in prior years.  And – sorry about this – if you paper file, that’s just another packet of returns you’ll likely have to purchase.”

Take a look at the 2020 Form 1099-NEC instructions (starting on page 7) at:

https://www.irs.gov/pub/irs-pdf/i1099msc.pdf

 

RULES:                                                                        .

From 2020 Instructions for Forms 1099-MISC and 1099-NEC :

File Form 1099-NEC, Nonemployee Compensation (NEC), for each person in the course of your business to whom you have paid the following during the year:

At least $600 in:

  1. Services performed by someone who is not your employee (including parts and materials) (box 1);
  2. Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish (box 1); or
  3. Payments to an attorney (box 1). (See Payments to attorneys, later.)

You must also file Form 1099-NEC for each person from whom you have withheld any federal income tax (report in box 4) under the backup withholding rules regardless of the amount of the payment.

What is [Nonemployee Compensation] NEC? If the following four conditions are met, you must generally report a payment as NEC.

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

 

BOTTOM LINE:

  • Many institutions have historically file Form 1099-MISC to report payments for services of $600 or more to “independent contractors.”
  • Although you may still file Form 1099-MISC for things like Royalties, Prizes and awards, Rents, Other income payments, etc.
  • On Form 1099-NEC you’ll report Nonemployee compensation (box 1), Federal income tax withheld (box 4), State tax withheld (box 5).  (Boxes 2 and 3 are “shaded out.”)
  • You must also file Form 1099-NEC for each person from whom you have withheld any federal income tax (report in box 4) under the backup withholding rules regardless of the amount of the payment.

Specific questions? Email Dave Moja

The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.

© 2020 Moja & Company, LLC