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1099 Changes for Tax Year 2020 – NEC and MISC

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For our US customers:

Tax Year 2020 has a major change for 1099 processing with the reintroduction of the NEC 1099 form that was last seen in the 1980s.  The NEC 1099 form replaces the old Box 7 for NonEmployee Compensation (NEC) on the 1099 MISC form.

If your vendors have non-employee compensation type keys assigned to them, then their 1099 NEC form will generate correctly without having to change vendor, voucher or payment information.  In other words, you should not have to change an vendor or voucher due to this change.

SBT Executive Series uses a set of 1099 keys which are then mapped to the appropriate 1099 forms and boxes.  For any given tax year, an Executive Series key may have a different form type and box associated with it.  The 1099 information screen (AP|Vendor Setup|1099 Information) has this information.  As long as your vendors and vouchers have the correct keys assigned to them, you should (usually) not have to update vendors in order to comply with these sorts of changes.   The only real difference this year is the extra 1099 NEC form that you may have to print.

This month (October) we received the finalized changes for the 2020 1099 forms and file layouts.  We have worked hard to get the changes into Executive Series and have just recently finished the changes.  We will begin testing the file generation directly with the IRS, so depending on the results of that, we may still have a few minor changes to make.

For those using our cloud/web version of Executive Series, all updates are handled automatically.   There are no additional steps you will need to take in order to generate the new form.

For those with on-premises versions of Executive Series we will need to schedule both a patch update as well as a database update for these 2020 1099 changes.   If you generate 1099s to your vendors, please send us an email [email protected] so we can start scheduling your update.

1099 Processing Tips

  • The IRS FIRE (Filing Information Returns Electronically) system is used to upload 1099 electronic file(s) https://fire.irs.gov   To send the IRS an electronic 1099 file an account needs to be setup.  Don’t wait until January to create a new account.   If you already have an account login before January to verify it is working.  
  • Setup your 1099 Transmitter control code and related information.  This is required for sending electronic files.  This screen is located under AP | Vendor Setup | 1099 Transmitter.  Once this code is setup, you will set it on the company screen.
  • Use the company window to verify that the federal ID is setup and valid.  Also, ensure that the 1099 electronic filing information in the lower section of the window is setup.   Select Admin | Application Setup | Company.
  • Use the vendor 1099 balance window to easily check on the vendor 1099 information.  Select AP | vendor setup | vendor 1099 balance.
  • You should only need to run the 1099 recalculation if you have vendor(s) that had the 1099 code set incorrectly on one or more vouchers.  If you determine that you do need to run the recalculation, then you should only run it for those vendors that require it.  You must set the 1099 code first on the vendor or vouchers prior to doing this.  Run the recalculation as a report first to see how it will change the 1099 values.
  • General reports – Accounts Payable there are numerous 1099 reports to use for review.   Also, this is where 1099 forms are printed from. 
  • The help includes detailed 1099 information it can be found by selecting Help | Contents | Accounts Payable – 1099 Setup and Processing. 

For more information see the What’s Changed — and Why It Matters section below, provided by Forms Fulfillment Center. 

Any 1099 questions or concerns let us know: email [email protected]. 

SBT

What’s Changed — and Why It Matters

In a move that will impact business owners and tax professionals across the nation, the IRS has released the 2020 Form 1099-NEC.  The new form replaces Form 1099-MISC for reporting nonemployee compensation (in Box 7), shifting the role of the 1099-MISC for reporting all other types of compensation.

As a result of the new 1099-NEC and redesigned 1099-MISC, the overall process for reporting nonemployee compensation is changing for the 2020 tax year.  We’ve compiled the essential details regarding the changes, so you know what to expect and how to handle the forms properly.

Why is the 1099-NEC Replacing Form 1099-MISC (Box 7)?

The Protecting Americans from Tax Hikes Act of 2015 (the PATH Act) – enacted on

December 18, 2015 – created a unique situation for tax filers.  In addition to moving the due date for Form 1099-MISC Forms containing data in Box 7; (nonemployee compensation), from February 28 to January 31, the legislation eliminated the automatic 30-day filing extension.  If an employer filed a batch of multiple 1099-MISC forms (potentially with data in Box 7 (nonemployee compensation) and without) after the January 31st deadline, the IRS could mistakenly treat them all as late returns and apply fines.

Beyond the time-management and administrative issues for the IRS to properly process the forms, some misaligned deadlines on the taxpayer side opened the door to fraud.  To resolve the various issues, the IRS revived Form 1099-NEC, effectively separating Box 7 (nonemployee compensation) from the 1099-MISC, as well as staggering the filing due dates.

2020 Instructions for Form 1099-NEC

The new 1099-NEC (NEC stands for Non-Employee Compensation) is based on an old form that has been out of use since 1982.  To use the “reinstated” 1099-NEC properly, you need to understand what is considered nonemployee compensation.  Previously reported on Box 7 of the 1099-MISC, the new 1099-NEC will capture any payments to nonemployee service providers, such as independent contractors, freelancers, vendors, consultants, and other self-employed individuals (commonly referred to as 1099 workers).

According to the IRS, a combination of these four conditions distinguishes a reportable payment:

✓ It is made to someone who is not your employee.

✓ It is made for services in the course of your trade or business.

✓ It was made to an individual, partnership, estate, or, in some cases, a corporation.

✓ Payments were $600 or more for the calendar year.

Critical Dos and Don’ts with Form 1099-NEC

✓ Do verify that the recipient’s taxpayer ID is correct.  You must have Form W-9 from each recipient with the current taxpayer ID before you complete Form 1099-NEC.

✘ Don’t use Form 1099-NEC to report personal payments.

✘ Don’t use Form 1099-NEC to report employee wages; use Form W-2 instead.

✘ Don’t report gross proceeds to an attorney (not fees) on Form 1099-NEC; use Form 1099-MISC instead.

✘ Don’t use Form 1099-NEC to report payments of rent to real estate agents or property managers; use Form 1099-MISC instead.

Please see attached for the details of the 1099-NEC

2020 Instructions for Form 1099-MISC

Because nonemployee compensation reporting has been removed from Form 1099-MISC for the 2020 tax season and beyond, the IRS has redesigned Form 1099-MISC.  The biggest change is Box 7, which was previously used for reporting nonemployee compensation.  The revised form includes other changes to the box numbers for reporting miscellaneous compensation.

Critical Dos and Don’ts with Form 1099-MISC

✓ Do report gross proceeds to an attorney (not fees) on Form 1099-MISC.

✓ Do complete a 1099-MISC if you made royalty payments of at least $10 during the year.

✓ Do use Form 1099-MISC for miscellaneous income, such as rents, royalties, and medical and health care payments.

✘ Don’t use Form 1099-MISC to report personal payments.

✘ Don’t use Form 1099-MISC to report employee wages; use Form W-2 instead.

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