Form 1099 Annual Update
The new Form 1099-NEC
Taxpayers who operate a business must issue annual 1099-NEC’s, Non-employee Compensation (NEC) to any non-corporate service provider that the taxpayer’s business pays $600 or more in a calendar year. Also, taxpayers who operate a business must issue 1099-NECs to any law firm/attorney paid $600 or more in a calendar year, regardless of whether the law firm/attorney is incorporated.
Form 1099-NEC includes the name, address, taxpayer identification number, and amount paid to the service provider. Form 1099-NEC Copy A (along with Form 1096 Transmittal) must be filed with the IRS and Form 1099-NEC Copy B issued to the service provider must be mailed to the recipient by January 31st of the following year, February 1st, 2021 for tax year 2020.
Form 1099-MISC updates
All items other than non-employee compensation previously reported on Form 1099-MISC such as rents, royalties, other income, etc. will still need to be reported on Form 1099-MISC for tax year 2020. Many of the boxes, however, have been rearranged. Form 1099-MISC must be filed with the IRS by paper on March 1st or electronically by March 31st of the following year.
Please note, Form 1099-MISC has an additional box this year, box 8, “Gross proceeds paid to an attorney”. This box should only be used for settlement agreement payouts to attorneys or similar payments. Normal fees paid to an attorney for services rendered should be reported on Form 1099-NEC, box 1.
For more information, please see 1099 General Instructions.
More details about Forms 1099
The minimum penalty for not timely filing a Form 1099 starts at $50 for each required form not filed by the February 1st deadline, and increases to $280 if not filed by August.
In order to ensure that the taxpayer/payor has the required information for Form 1099 filing purposes, the payor should request Form W-9 from each service provider. Form W-9 is for the payor’s records only, i.e. not mailed to the IRS. The purpose of Form W-9 is to give the landlord/payor the information needed to determine whether a Form 1099-NEC is required (i.e. whether “C Corporation” or “S Corporation” boxes are checked on Line 3) and lists the Taxpayer name, address and TIN to be used if a Form 1099-NEC or 1099-MISC is ultimately required. There is no need to request a Form W-9 from the service provider if the landlord/payor already knows the payee is a corporation. Also, there is no penalty for “over-reporting” and issuing a Form 1099-NEC or 1099-MISC to a corporation that is not otherwise subject to the 1099 reporting rules.
Going forward, we recommend requesting a Form W-9 from each service provider prior to payment. It is much easier to request this information upfront and prior to payment rather than waiting until after year-end to track down the information.
California filing requirements
California requires that you file Form DE-542 within 20 days of paying an independent contractor $600 or more or entering into a contract that calls for a payment of $600 or more. These forms can be downloaded from the EDD website. This is an informational filing with the sole purpose of assisting the state and county agencies in locating parents who are delinquent in their child support obligations.
California Forms 1099-NEC must also now be filed with the State in addition to the Federal filing. Prior to tax year 2020, the Federal agencies would remit all 1099s to their corresponding states. The IRS has announced that they will not be remitting Forms 1099-NEC to their respective states. California has consequently announced that they will be requiring all Forms 1099-NEC to be either e-filed or paper filed directly with the FTB. For more information, please see the FTB’s website.
Form 1099 Information return filing
Our office does not handle the annual Form 1099 informational return filings, so we wanted to make sure our clients were aware of the potential Form 1099 filing requirements before the February 1st filing deadline.
Many bookkeepers will file Forms 1099 for their bookkeeping clients. If you do not currently have a bookkeeper and/or would like to explore options to complete any required 1099s, we have the following three suggestions. We are not affiliated with any of these companies and receive no referral fees should you choose to engage them.
- Chelsey Klein, ADP (858) 945-3335 Chelsey.Klein@adp.com Chelsey.Klein@adp.com
- Lisa Wells, Elite Concierge Services, (619) 890-0871 firstname.lastname@example.org email@example.com
- Greatland Yearli (more of a do-it-yourself approach) yearli.com/forms/1099-MISC
Please do not hesitate to contact our office if you have any questions regarding the information contained in this letter.
Gatto, Pope & Walwick, LLP
Certified Public Accountants