We’re towards the end of January meaning tax reporting season! The deadline to submit Form 1099- NEC to independent contractors and the IRS is February 1st.
In the prior years payments to independent contractors were reported using Form 1099-MISC. For the current reporting season, you will need to use Form 1099- NEC if you’ve made payments totaling $600 or more to a non employee service provider (eg independent contractor). Similarly if you are self- employed, you’ll likely to receive these if you were paid more than $600. The deadline for submission of these forms for this year is February 1st 2021 and there are no extensions unless your business meets certain hardship conditions which you can find on extension form 8809.
Filing out the form
The IRS gives four conditions under which you must generally report a payment as nonemployee compensation:
1. You made the payment to someone who is not your employee.
2. You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations).
3. You made the payment to an individual, partnership, estate, or, in some cases, a corporation.
4. You made payments to the payee of at least $600 during the year.
You’ll need the payee’s:
Name
Address
Taxpayer identification number (you can use their social security number or employer identification number)
The amount that you paid them, as well as any federal or state tax withheld.
The easiest way to keep this information on file is by using Form W-9. We suggest asking your contractor to complete and submit this form when they start working for you, as long as there’s any chance you’ll be paying them more than $600 per year.
While helpful, a W-9 is not required. You may incorporate a substitute Form W-9 into other business forms you customarily use. However, the certifications on the substitute Form W-9 must clearly state (as shown on Part II of the official Form W-9) that under penalties of perjury:
1. The payee’s TIN is correct,
2. The payee is not subject to backup withholding due to failure to report interest and dividend income,
3. The payee is a U.S. person, and
4. The FATCA code entered on this form (if any) indicating that the payee is exempt from FATCA reporting is correct.
State filing requirements
In addition to filing Form 1099-NEC with the Internal Revenue Service (IRS) , several states also require 1099-NEC filings for non-employee compensation (contractor payments). Verify your responsibilities by checking your state's website or speaking with your accountant.
