Update: IRS releases draft of new Form 1099-NECJuly 26, 2019

Draft of Form 1099-NEC

IRS has released a draft of a new form, Form 1099-NEC, Nonemployee Compensation, to report nonemployee compensation paid in 2020. Previously, nonemployee compensation was reported on Form 1099-MISC, Miscellaneous Income.

Background.  If the following four conditions are met, a payor must generally report a payment to the IRS as nonemployee compensation (NEC):

  1. The payor made the payment to someone who is not the payor’s employee.
  2. The payor made the payment for services in the course of the payor’s trade or business (including government agencies and nonprofit organizations).
  3. The payor made the payment to an individual, partnership, estate, or, in some cases, a corporation.
  4. The payor made payments to the payee of at least $600 during the year. (2019 Instructions to Form 1099-MISC)

For NEC payments made prior to 2020, NEC is reported on line 7 of Form 1099-MISC. (2019 Instructions to Form 1099-MISC)

For payments made before 2020, if a payor has made payments to an individual, other than NEC, that have to be reported on Form 1099-MISC, then the payor has to file the form with the IRS by March 31 following the year of payment. ( Code Sec. 6041 ; 2019 Instructions to Form 1099-MISC)

The Protecting Americans from Tax Hikes Act (Section 201(a)DivQ, PL 114-113 ) requires that, starting with payments made in 2017, a payor has to report NEC payments on or before January 31 of the year following the year of payment. ( Code Sec. 6071(c) )

So, for payments made prior to 2020, if a payor is reporting both NEC payments and other payments that must be reported on Form 1099-MISC, then the payor must file the form by January 31, not March 31. (2019 Instructions to Form 1099-MISC)

New form 1099-NEC. The IRS has released a draft of a new form, Form 1099-NEC, Nonemployee Compensation, to report NEC payments made during 2020.

Observation.  While a draft of the Form 1099-MISC for 2020 has not been released yet, presumably it will not include a line to report NEC. This will reduce the confusion that a payor might have as to whether the payor has to file the form by January 31 or March 31.

The instructions for the draft Form 1099-NEC state that a payor must file a copy of it with the IRS by February 1, 2021.

Observation.  January 31, 2021 is a Sunday.

The draft Form 1099-NEC does not ask for any other information than was not asked for on Form 1099-MISC.

References: For reporting of nonemployee compensation, see  FTC 2d/FIN ¶S-3658 ; United States Tax Reporter ¶60414.001 .

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