Preparing Form 1099-NEC: A Step-by-Step Guide for TY2020

Before you begin preparing your Form 1099-NEC reporting, it is important that you know what information you need to gather. This step-by-step guide identifies 5 key topics that will help you correctly and timely file your Form 1099-NEC. 

What’s New for 2020?

The PATH Act accelerated the due date for filing Form 1099 that includes nonemployee compensation (NEC) from February 28 to January 31 and eliminated the automatic 30-day extension for forms that include NEC.

Beginning with tax year 2020, use Form 1099-NEC to report nonemployee compensation.

1. Determine who receives a Form 1099-NEC

File Form 1099-NEC, Nonemployee Compensation (NEC), for each person in the course of your business to whom you have paid the following during the year:

  • At least $600 in:
    – 1.Services performed by someone who is not your employee (including parts and materials) (box 1);
    – 2.Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish (box 1); or
    – 3.Payments to an attorney (box 1). (See Payments to attorneys, later.)
  • You must also file Form 1099-NEC 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.

2020 Instructions for Forms 1099-MISC and 1099-NEC

Form 1099-NEC should only be used to report payments made in the course of your trade or business, do not report personal payments.

2. Gather the information to prepare Form 1099-NEC

The information needed for preparing Form 1099-NEC includes the taxpayer names, addresses, and identification numbers for the reporting company (“payer”) and the recipient (“payee”), as well as the amounts paid to the recipient.

3. Verify your information

It is important that you take the time to review the information you are reporting on your Forms 1099-NEC for accuracy before distributing and filing, including the payment amounts and taxpayer information. This will minimize the risk of incurring penalties and fines.

4. Distribute and file Form 1099-NEC

The IRS and recipient each require copies of the 1099-NEC form, as well as some state tax departments.

5. Deadlines for Form 1099-NEC

All recipient copies of Form 1099-NEC must be distributed by February 1, 2021.

Forms 1099-NEC be submitted to the IRS by February 1, 2021.

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