What are Form 1099-NEC’s and do you need to file them?
Do you need to file Form 1099-MISC or 1099-NEC's this year?
The Internal Revenue Service has resurrected a form that has not been used since the early 1980s, Form 1099-NEC (the NEC stands for non-employee compensation). Form 1099-NEC is used to report all payments made to nonemployee service providers, while Form 1099-MISC is used to report rents, royalties, health care payments, attorney fees, and other business-related payments not made directly to an individual.
Why the Change?
To control fraudulent credit claims - primarily for the earned income tax credit (EITC), which is based on earned income from working. Scammers were filing tax returns before the normal February 28 due date for 1099-MISC, which does not give the IRS the time to cross-check the earned income claimed in the returns.
If you operate a business and engage the services of an individual (independent contractor) other than one who meets the definition of an employee, and you pay him or her $600 or more for the calendar year, you are required to issue the individual a Form 1099-NEC soon after the end of the year to avoid penalties and the prospect of losing the deduction for his or her labor and expenses in an audit.
A Change on Form 1099-MISC
As a result, the 1099-MISC has also been revised, and Box 7—where non-employee compensation used to be entered—is now a checkbox for “Payer made direct sales of $5,000 or more of consumer products to a buyer (recipient) for resale.”
The due date for filing a 1099-NEC or 1099-MISC with the IRS and mailing the recipient a copy of the 1099-NEC that reports 2022 payments is January 31, 2023.
Penalties for Late Filings
The penalties for failure to file the required informational returns are $280 per informational return. The penalty is reduced to $50 if a correct but late information return is filed no later than 30 days after the required filing date or it is reduced to $110 for returns filed after the 30th day but no later than August 1, 2023.
To file on time, we need your information no later than Thursday, January 19, 2023.
It is good practice to always have individuals who are not incorporated complete and sign an IRS Form W-9 the first time you engage them and before you pay them. Having a properly completed and signed Form W-9 for all independent contractors and service providers eliminates any oversights and protects you against IRS penalties and conflicts. If you have been negligent in the past about having W-9s completed, it would be a good idea to establish a procedure for getting each non-corporate independent contractor and service provider to fill out a W-9 and return it to you going forward.
IRS Form W-9, Request for Taxpayer Identification Number and Certification, is provided by the government as a means for you to obtain the vendors’ data you’ll need to accurately file the 1099s. It also provides you with verification that you complied with the law in case a vendor gave you incorrect information. We highly recommend that you have potential vendors complete a Form W-9 prior to engaging in business with them. The W-9 is for your use only and is not submitted to the IRS.
If you would like us to file your 1099s on your behalf, please visit our website here, to find our engagement letter, fees, and step-by-step instructions.
If you have questions, please call us at (585) 454-8780.