- Find out about 1099-NEC filing requirements.
- Learn more about the independent contractor filing threshold.
- Find out why you should have all independent contractors and service providers fill out a Form W-9.
- Fill out the Form 1099-NEC worksheet to help your Fiducial representative prepare 1099s.
This is Fiducial’s annual reminder that if you use workers other than employees to perform services for your business and pay them $600 or more for the year, you must issue each one a Form 1099-NEC after the end of the year to avoid facing the loss of the deduction for their labor and expenses. You must provide the 1099s for 2020 to workers no later than February 1, 2021. The forms have an extended due date of February 1 since the normal due date, January 31, falls on a Sunday.
As you’ve probably noticed, the IRS has switched forms for 2020 reporting. They have brought back a form not used since the early 1980s—Form 1099-NEC, Nonemployee Compensation. Previously, the IRS used the 1099-MISC form for reporting more than just nonemployee compensation. Because 1099s reporting non-employee compensation need to be filed by January 31, and the ones reporting other information are not due to the IRS until March 31, this created enough confusion that the IRS made the change.
The requirement to file Form 1099-NEC may also apply to landlords in light of the tax reform’s 20% pass-through deduction (Sec. 199A deduction). The IRS, in regulations for this tax code section, warns landlords that to be treated as a trade or business (and therefore to be generally eligible for the 199A deduction), they should consider reporting payments to independent contractor service providers on IRS Form 1099-NEC.
This generally wasn’t required for rental activities in the past and still isn’t required when a rental is classified as an investment rather than as a trade or business.
It is not uncommon to, say, have a repairman out early in the year, and pay them less than $600. Then, you may use his services again later and have the total for the year exceed the $600 limit. As a result, you could easily overlook getting the necessary information. (You’ll need their complete name and tax identification number (TIN) to file the 1099s for the year.) Therefore, it is best that unincorporated individuals complete and sign the Form W-9 the first time you use their services.
Properly completing and signing Form W-9s for all independent contractors and service providers eliminates oversights and protects you against IRS penalties and conflicts.
The government provides IRS Form W-9 as a means for you to obtain the data required to file 1099s for your vendors. This data includes the vendor’s name, address, type of business entity and TIN (usually a Social Security number or an Employer Identification Number) as well as certifications of the ID number and citizenship status. It also provides verification that you complied with the law should the vendor provide you with incorrect information.
We highly recommend that you have potential vendors complete Form W-9 prior to doing business with them. You may print the form to fill out or complete it onscreen and then print it. The IRS also makes a Spanish-language version available. The W-9 is for your use only. You do not need to submit W-9s to the IRS.
CAUTION: 1099-NEC worker reporting does not apply to household workers; the IRS considers them employees. Call your Fiducial representative for more information.
How to file Form 1099-NEC
To avoid a penalty, the government’s copies of the 1099-NECs must also be sent to the IRS by February 1, 2021. The penalties can be pricey, ranging between $50 and $280 for each 1099-NEC filed late. If you do not obtain a worker’s Social Security number but file the 1099 on time, the penalty for not including the SSN is $50, which is less than the potential $280 penalty for filing late or not at all.
You must file 1099-NEC forms electronically or on special optically scannable forms. Do you need assistance with filing 1099-NEC or have questions related to this issue? Call Fiducial at 1-866-FIDUCIAL or make an appointment at one of our office locations to discuss your situation.
You can also complete the 1099-NEC worksheet and forward it to your Fiducial representative to prepare 1099s. In addition, make sure you have all of your non-employee workers or service providers complete a Form W-9 for 2020.
For more small business COVID-19 resources, visit Fiducial’s Coronavirus Update Center to find information on SBA loans, tax updates, the Paycheck Protection Program, paid sick and family leave, and more.