Ready or not, the 2020 tax season is on the horizon, and the IRS has yet again over-complicated things by releasing a new 1099 form that business owners need to become familiar with.
The new form 1099-NEC replaces form 1099-MISC’s box 7, previously used to report non-employee compensation. So, in a nutshell, they’ve taken one form and split it up into two separate forms for the upcoming tax season.
Here’s an overview of what you need to know about the new Form 1099-NEC, what’s now on Form 1099-MISC, and how QuickBooks is handling all these changes.
Help! Do I Use Form 1099-MISC or 1099-NEC?
Overview of Form 1099-MISC
Form 1099-MISC used to be filed for any miscellaneous payment made over $600. This captured everything from attorney fees to rent payments to payments made to independent contractors and businesses for services provided. However, the IRS released a separate form for the 2020 tax year to report non-employee compensation — Form 1099-NEC. Therefore, the 1099-MISC form should only be filed if your business paid an individual, partnership, or LLC at least $600 during the year in rents, royalties, prize or award winnings, other income payments, gross proceeds paid to attorneys, or legal settlements. However, if the recipient is registered as a corporation (other than attorneys), a 1099-MISC will not be required.
Overview of Form 1099-NEC
The new IRS 1099-NEC form is now used to report independent contractor payments, which is the most common reason to file a 1099 form. So if your business paid a contractor, freelancer, vendor, attorney, or any other non-employee more than $600 in a year, you are required to file this new form. However, if the independent contractor is registered as a corporation (other than attorneys), a 1099-NEC will not be required.
This is a prime example of why you need to be asking for W-9s from all of your vendors — so you know if they are registered as a corporation or not. A W-9 gives you all the necessary information to properly fill out a 1099.
It’s also important to note that you should not file a 1099-NEC for any employees. There are significant penalties for misclassifying employees as independent contractors. If you need a refresher on why worker classification matters, check out our blog post where we explain the differences between independent contractors vs. employees.
How Is QuickBooks Handling the New 1099-NEC Form?
If you prepare your 1099s out of QuickBooks, you need to look at the mappings so things can properly go to the new 1099-NEC form. QuickBooks Online requires remapping, which can be started immediately. However, the desktop editions are still being programmed and are not yet ready to begin the remapping process.
If you need assistance in getting QB set up for next year, we are here and happy to help. Reach out to us today, and we will connect you with one of our experts.
As always, we are here to make the complex simple.