***NOTE*** We do not intend this article to represent legal or tax advice. Consult your tax professional and the IRS site for complete details. This article is for information only.***
Because of a redesign in Form 1099-MISC, the IRS has reintroduced Form 1099-NEC. Nonemployee compensation was previously reported in Box 7 of the 1099-MISC. It is now reported in Box 1 of the 1099-NEC.
According to IRS.gov, businesses are to report on Form 1099-NEC (Non-Employee Compensation) only when making payments in the course of your trade or business to nonemployees, this includes independent contractors. Personal payments are not reportable. Form 1099-NEC must be postmarked by January 31st of the following year.
By IRS definition, you are engaged in a trade or business if you operate for gain or profit. Business will still report miscellaneous income payments on 1099-MISC. (See IRS guidelines for complete information.)
It is important to note that the IRS considers nonprofit organizations to be engaged in a trade or business and are subject to these reporting requirements.
Some other organizations subject to these reporting requirements include:
1. Trusts of qualified pension or profit-sharing plans of employers, certain organizations exempt from tax under section 501(c) or 501(d),
2. Farmers' cooperatives exempt from tax under section 521, and
3. Widely held fixed investment trusts.
4. Payments by federal, state, or local government agencies are also reportable.
See 1099-NEC form instructions link below for complete details, and information about exceptions.
WHO MUST RECEIVE A 1099-NEC?
Businesses must file the 1099-NEC for each person who received payment of at least $600 for:
1. Services performed by someone who is not your employee (including parts and materials);
2. Cash payments for fish (or other aquatic life) you purchase from anyone engaged in
the trade or business of catching fish; or
3. Payments to an attorney.
4. Payment to any person from whom federal income tax was withheld under the
backup withholding rules, regardless of the amount of the payment (even if paid less than $600).
Do you feel overwhelmed by your bookkeeping and record-keeping? Waggoner Professional Services can help. Reach out to us today for more information.