IRS Guidance

This year the deadline for 1099 is February 1, 2021. Note that you can still release 1099 after the deadline but there might be penalties associated with the filing.

The 2020 tax year brings a new form. Form 1099-NEC is for tax year 2020 for nonemployee compensation of $600 or more to a payee. This form should be filed with the IRS, on paper or electronically, and sent to recipients by February 1, 2021.

Form 1099-MISC is used for the following payments/compensation:

  • At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
  • At least $600 in the following:
    • Rents
    • Prizes and awards
    • Other income payments
    • Cash from a notional principal contract to an individual, a partnership or an estate
    • Any fishing boat proceeds
    • Medical and health care payments
    • Crop insurance proceeds
    • Section 409A deferrals
    • Nonqualified deferred compensation

Link IRS Deadline 2020 1099 – https://www.irs.gov/newsroom/businesses-have-feb-1-deadline-to-provide-forms-1099-misc-and-1099-nec-to-recipients#:~:text=Redesigned%20Form%201099%2DMISC&text=The%20redesigned%201099%2DMISC%20has,March%2031%20if%20filing%20electronically).

Link IRS – Reporting Payments to Independent Contractors – https://www.irs.gov/businesses/small-businesses-self-employed/reporting-payments-to-independent-contractors

Link IRS – Independent Contractor (Self-Employed) or Employee? – This topic has been already covered in previous posts, but it is always relevant and you should analyze what category your third parties are – https://www.irs.gov/businesses/small-businesses-self-employed/independent-contractor-self-employed-or-employee

State Guidance

In the last couple of years, more and more States are requiring 1099 withholdings for any non resident payee. These withholdings have usually a number of exemptions, mainly if the dollar amount is relatively small (i.e. $5,000 in the case of PA).

Guidance for NJ – https://www.state.nj.us/treasury/taxation/njit30.shtml

Instructions to set up withholding for NJ (Section 1099) – https://www.state.nj.us/treasury/taxation/pdf/current/njwt.pdf

Guidance for PA – https://www.revenue.pa.gov/GeneralTaxInformation/Tax%20Types%20and%20Information/NonresidentWithholding/Pages/default.aspx

Instructions to set up withholding for PA (Section  Payors that withhold from a payee are  ) – https://www.revenue.pa.gov/GeneralTaxInformation/TaxLawPoliciesBulletinsNotices/InformationalNotices/Documents/info_notice_pit_2017-01.pdf

For any other States, please, reach out to our office or read the State official guidance online.

Compliance

As the requirements are constantly changing and becoming more complex (example 1 – 2020 brought a new 1099 form NEC, example 2 – In the last years, States are requesting 1099 withholdings for non residents), you can follow our post or you can outsource the 1099 preparation to a payroll company to ensure you meet all the Federal, State and local requirements. Some of our clients use the payroll companies to pay their w2 employees and their 1099 contractors.