Plan for changes to Form 1099 filing for 2020: New deadlines, nonemployee compensation procedure
With the passing of the Protecting Americans from Tax Hikes (PATH) Act of 2015, Congress changed the due date of “Nonemployee compensation” reported on Form 1099-MISC, Box 7, to Jan. 31. This new reporting rule led to confusion – different types of MISC income that were previously reported and filed together now had different due dates – which contributed to an increase in late filing penalties for many filers.
To remedy the situation, the IRS has re-introduced the Form 1099-NEC, “Nonemployee Compensation,” which was last used in 1982, to simplify the filing requirement.
1. Report payments of $600 or more made to nonemployee service providers, such as independent contractors, consultants, accountants, cleaning professionals, landscapers, and other self-employed individuals, as well as non-incorporated entities, which includes any partnership, limited liability company (LLCs), limited partnership (LP), or estate. This also includes professional fees paid to attorneys (including law firms established as corporations).
2. Report backup withholding.
1. Report all other types of miscellaneous compensation paid in the amount of $600 or more in your ordinary course of trade or business, such as rents, prizes and awards, certain medical and healthcare payments, and other income, as well as royalties paid over $10.
2. The redesigned Form 1099-MISC has updated box numbers.
ELECTRONIC FILING REQUIREMENT UPDATE
The IRS is considering reducing the threshold for e-filing from 250 returns to 100, but until IRS regulations are issued, the threshold remains unchanged. We will provide updates on any changes to these requirements.
While the IRS allows an automatic 30-day extension for certain Forms 1099, there is no automatic extension for filing Form 1099-NEC. Contact your CohnReznick engagement team or other trusted tax advisor with any questions.
Failure to comply with the various filing deadlines and requirements may expose a business to the following significant penalties:
- Failure to file the correct information returns or furnish the correct payee statements by the due date:
- Small businesses (average annual gross receipts of $5 million or less for the most recent three taxable years): $50-$280 per recipient, depending on when you file/furnish, with a maximum penalty of $1,130,500 per year
- Large businesses (average annual gross receipts of more than $5 million): $50-$280 per recipient up to a maximum of $3,392,000 per year
- For failure to provide a correct information return or payee statement due to intentional disregard, the penalty is at least $560 per 1099 or statement with no maximum penalty.
- Intentional disregard of filing requirements:
- Small businesses: $560 per statement, no limitation
- Large corporations: $560 per statement, no limitation
If you have received Form 1099 non-matching notices, be vigilant and follow up with your vendors or you may be penalized for the maximum amount per incorrectly filed recipient.
2020 DUE DATE SUMMARY CHART
IMPORTANT CALENDAR REMINDERS
To timely prepare and e-file your Forms W-2 and/or 1099-NEC, provide your data to your tax team by Jan. 11.
Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.