Filing IRS Forms 1099-NEC, 1099-Misc and 1098
Patti Hills
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Focused on You. Dedicated to Your Success.
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January 4, 2021
The Protecting Americans from Tax Hikes (PATH) Act of 2015 accelerated the due date for filing Form 1099 from February 28 to January 31 and eliminated the automatic 30-day extension for forms that include non-employee compensation (NEC).
To prepare and file Form 1099-NEC and Form 1098 - Mortgage Interest Statement in a timely manner, and meet the IRS's due date, all recipient information must be received in the office of McCarthy and Company on or before Friday, January 15, 2021. Form 1099-NEC and Form 1098 recipients must receive their copy of the forms on or before February 1, 2021. Please make sure the recipient’s Tax Identification Number (TIN), names, and addresses are correct. A TIN can be in the form of a social security number (SSN), individual taxpayer identification number (ITIN), adoption taxpayer identification number (ATIN), or employer identification number (EIN).
If a business fails to file an information return by the due date, there is a penalty for late filing.
- Having suffered a catastrophic event in a federally declared disaster area that made the filer unable to resume operations or made necessary records unavailable.
- Fire, casualty, or natural disaster affected the operations of the filer; or
- Death, serious illness, or unavoidable absence of the individual responsible for filing the information returns, which affected the operation of the filer.
Due to the creation of Form 1099-NEC, the IRS has revised Form 1099-MISC and rearranged box numbers for reporting certain income. Changes in the reporting of income and the form’s box numbers are listed below.
- Payer made direct sales of $5,000 or more (checkbox) in box 7.
- Crop insurance proceeds are reported in box 9.
- Gross proceeds to an attorney are reported in box 10.
- Section 409A deferrals are reported in box 12.
- Nonqualified deferred compensation income is reported in box 14.
- Boxes 15, 16, and 17 report state taxes withheld, state identification number, and amount of income earned in the state, respectively.
Since January 31, 2021 falls on a Sunday, the 2020 Form 1099-NEC must be filed on or before February 1, 2021, using either paper or electronic filing procedures. Form 1099-NEC must be filed with the IRS no later than February 1, 2021 as well. The deadline for reporting other information on the Form 1099-MISC is March 1 (for paper filing) and March 31 (for electronic filing). To alleviate complexities of using the same form to report information with different due dates, the IRS reinstated the Form 1099-NEC (which was last used in 1982).
Filers of 250 or more 1099-NEC forms must e-file through the IRS’ FIRE system. First-time e-filers must file Form 4419 to get a transmitter control code. The IRS needs 45 days to process the form.
Participating in the IRS’ combined federal/state filing (CFSF) program eliminates the need for you to send 1099s to the states. However, for 2020 CFSF is not accepting Form 1099-NEC. You will need to file the Form 1099-NEC separately with your state agency.
Specific Instructions for Form 1099-MISC
The instructions for Form 1099-NEC are folded into the instructions for Form 1099-MISC , Miscellaneous Income. The appropriate form must be filed for each person to whom your business has paid the following during the year:
At least $10 in royalties (see the instructions for box 2) or broker payments in lieu of dividends or tax-exempt interest (see the instructions for box 8).
At least $600 in:
- Rents (box 1);
- Prizes and awards (box 3);
- Other income payments (box 3);
- Generally, the cash paid from a notional principal contract to an individual, partnership, or estate (box 3);
- Any fishing boat proceeds (box 5);
- Medical and health care payments (box 6);
- Crop insurance proceeds (box 9);
- Payments to an attorney (box 10) (see Payments to attorneys, later);
- Section 409A deferrals (box 12); or
- Nonqualified deferred compensation (box 14).
You must also file Form 1099-MISC for each person from whom you have withheld any federal income tax (report in box 4) under the backup withholding rules regardless of the amount of the payment.
Be sure to report each payment in the proper box because the IRS uses this information to determine whether the recipient has properly reported the payment.
Trade or business reporting only. According to irs.gov, income should be reported on Form 1099-MISC only when payments are made by your trade or business. Personal payments are not reportable. You are engaged in a trade or business if you operate for gain or profit. Nonprofit organizations are engaged in a trade or business and are subject to these reporting requirements.
Other organizations subject to these reporting requirements include trusts of qualified pension or profit-sharing plans of employers, certain organizations exempt from tax under section 501(c) or (d), farmers' cooperatives that are exempt from tax under section 521, and widely held fixed investment trusts. Payments by federal, state, or local government agencies are also reportable.
Exceptions. Some payments do not have to be reported on Form 1099-MISC, although they may be taxable to the recipient. Payments for which a Form 1099-MISC is not required include all the following:
- Generally, payments to a corporation (including a limited liability company (LLC) that is treated as a C or S corporation). Exceptions apply.
- Payments for merchandise, telegrams, telephone, freight, storage, and similar items.
- Payments of rent to real estate agents or property managers. However, the real estate agent or property manager must use Form 1099-MISC to report the rent paid over to the property owner.
- Wages paid to employees (report on Form W-2, Wage and Tax Statement).
- Military differential wage payments made to employees while they are on active duty in the Armed Forces or other uniformed services (report on Form W-2).
- Business travel allowances paid to employees (may be reportable on Form W-2).
- Cost of current life insurance protection (report on Form W-2 or Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.).
- Payments to a tax-exempt organization including tax-exempt trusts (IRAs, HSAs, Archer MSAs, Coverdell ESAs, and ABLE (529A) accounts), the United States, a state, the District of Columbia, a U.S. possession, or a foreign government.
- Payments made to or for homeowners from the HFA Hardest Hit Fund or similar state program (report on Form 1098-MA).
- Compensation for injuries or sickness by the Department of Justice as a public safety officer disability or survivor's benefit, or under a state program that provides benefits for surviving dependents of a public safety officer who has died as the direct and proximate result of a personal injury sustained in the line of duty.
- Compensation for wrongful incarceration for any criminal offense for which there was a conviction under federal or state law.
Form 1099-K. Payments made with a credit card or payment card and certain other types of payments, including third-party network transactions, must be reported on Form 1099-K and are not subject to reporting on Form 1099-MISC.
Statements to Recipients. If you are required to file Form 1099-MISC, you must furnish a statement to the recipient. You can furnish each recipient with a single payee statement reporting all Form 1099-MISC payment types. You are required to furnish the payee statements by January 31 and file with the IRS by March 1, (March 31, if filing electronically).
Truncating recipient’s TIN on payee statements. All filers of this form may truncate a recipient’s TIN on payee statements. Truncation is not allowed on any documents the filer files with the IRS.
If you have any questions on the above, feel free to contact me or any member of our team at (610) 828-1900 (PA) or (732) 341-3893 (NJ). I can also be contacted at Patti.Hills@MCC-CPAs.com and Marty McCarthy at Marty.McCarthy@MCC-CPAs.com. As always, we are happy to help.
Stay safe,
Patricia J. Hills
Staff Associate
McCarthy & Company
Disclaimer: This alert is for informational purposes only and does not constitute professional advice. Information contained in this communication is not intended or written to be used as tax advice, and cannot be used by the recipient to avoid penalties that may be imposed under the Internal Revenue Code. We strongly advise you to seek professional assistance with respect to your specific issue(s).
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