Why the IRS requires updated 1099 NEC: Have you paid an independent contractor in the prior year? Which form would you file to report non-employee compensation made in 2020? According to the IRS, the filers who have paid non-employees must use a new tax form to report NEC.
Still didn’t understand why to use the new tax form? Don’t worry! We will let you know why the IRS requires updated 1099 NEC from the 2020 tax year. We also provide you information about the new tax form which brought back its way in the 2020 calendar year.
What the new tax form updated 1099 NEC?
Previously, business individuals or owners who hired contractors used to issue a 1099 MISC Form. Now, in the 2020 tax year, the IRS introduced a new tax form for reporting income paid to non-employees in a calendar year. This new tax form replaces the old 1099 MISC box 7. Businesses must use the new 1099 NEC Form from the 2020 tax year to report non-employee compensation. Along with the introduction of a new tax form, the IRS revised the old 1099 MISC boxes. So, every individual must make sure to use a new tax form for reporting payments made to individuals who not treated as employees.
The prominence of the 1099 NEC tax form for 2020
Form 1099 NEC was an old tax form that was last used in the tax year 1983 to report non-employee compensation. Further, the taxpayers used the 1099 MISC tax form to report both miscellaneous income and non-employee compensation. The changes made in reporting NEC through 1099 MISC box 7 due to PATH Act 2015 brought the back the way to report NEC in the old 1099 NEC Form.
Most businesses hire non-employees to perform work on the course of business or trade. Non-employee may be an individual, contractors, gig workers, etc., who are a part of the organization but not as an employee. Form 1099 NEC became prominence for the 2020 tax year due to the rapid increase in hiring non-employees to perform services.
When do the businesses use 1099 NEC?
Following are the situations where the business requires to use Form 1099 NEC:
Hiring a contractor
When you hire an individual whose income not paid like a regular salary, then use the 1099 NEC Form to report the payments made in a tax year. For example, if you hire a web designer to design your organization’s logo, then the business uses the 1099 NEC Form.
Services on the course of business
If you are performing services as a contractor on the course of carrying out business activities, then you’ll receive 1099 NEC Form the business. Businesses use the Form to report services performed by an individual on the course of business. Don’t use the form to report services performed for personal use.
Payments exceeded $600 in a calendar year
Every business individual must use the new Form 1099 NEC to report the payments which exceed $600 annually. The payments made below $600 reported on the Form.
What are the circumstances to revive IRS Form 1099 NEC?
The major circumstances to revive IRS Form 1099 NEC given below:
To reduce the IRS unwanted penalties
As we know, the taxpayers use the 1099 MISC Form to report miscellaneous income and non-employee compensation. The due date to report NEC using 1099 MISC box 7 was by February 28the for paper filing and e-filing. For other boxes on 1099 MISC, the due date is March 31st for e-filing. This made the IRS impose unwanted penalties when the Form was issued electronically to the same payee. To reduce the IRS unwanted penalties, the new 1099 NEC was revived its way back.
To alleviate confusion created by the PATH Act 2015
PATH Act 2015 made the changes in reporting NEC and miscellaneous income using the old 1099 MISC Form. It changed the due date of reporting NEC from February 28th to January 1st. Due to dual filing deadlines, the payer was confused. To alleviate confusion created by PATH Act, the IRS revived 1099 NEC in 2020.
To control fraudulent activities
Due to dual filing deadlines using the same Form 1099 MISC, the IRS doesn’t have time to recheck the submitted Forms. this made to the scammers a chance of fraudulent activities. To control fraudulent activities, the IRS has brought back the old 1099 NEC tax form.
Key dates to file Federal 1099 NEC for 2020
Generally, the payers must file Form 1099 NEC by January 31st of every tax year. For the 2020 tax year, January 31st falls on Sunday. So, the due dates extended to the next business day when the due date falls on Saturday, Sunday, Holiday. File Form 1099 NEC by February 1st, 2021 for the payments made in the prior year 2020. Distribute Copy B of the Form to the recipient and Copy A to the IRS by February 1st, 2021. Please make sure that the due date is the same for e-filing or paper filing the 1099 NEC tax form.
Printable 1099 NEC Form extensions
Business individuals who are in a thought to file an extension must make sure that no automatic extension for 1099 NEC Forms. IRS only grants an extension for filing Form 1099 late when requested.
The extension request must be postmarked between the mid of January 2021 to Starting of February 2021. This means the filers need to file an extension request within the due date of Form 1099 NEC. IRS grants an extension to file Form 1099 NEC for nearly 30 days when requested with a reasonable cause. Additionally, the payer needs to provide proof of late filing Form 1099 NEC to the IRS.
File Form 1099 NEC using Form 1099 online and submit the form to the IRS with accurate speed. Form1099Online, an IRS trusted e-file provider where the information returns safe and secured. Login or signup with us and start your e-filing 1099 tax forms quickly. That’s the complete information on Why the IRS requires updated 1099 NEC.