In a year when businesses have overcome a variety of obstacles and challenges brought about by the COVID-19 pandemic, many are excited for the year to come to an end. During this time, management is analyzing overall sales, operational, and financial performance, while making plans and setting goals for 2021. Navigating a path through the pandemic has changed the strategic planning process requiring management to venture beyond traditional performance metrics. It is against this backdrop, that many Atlanta businesses that pay independent contractors and vendors for services will be required to submit a new IRS filing. The IRS Form 1099-NEC which was introduced earlier this year will now require businesses to report non-employee compensation (NEC) differently. To help clients, prospects and others understand the impact, Wilson Lewis has provided a summary of key points below.
This is a new Form that requires businesses to report any non-employee compensation paid during 2020. The compensation which needs to be reported on Form 1099-NEC includes payments to independent contractors such as lawyers, accountants, software, HR, and benefit consultants to name a few. In addition, all non-employee sales commission must also be reported using this form.
Why the Change?
The change was made by the IRS for several reasons. First, there was significant fraud occurring when individual taxpayers submitted a return with large refunds using fake 1099-MISC forms. To make the fraud plausible, individuals would underreport non-employee compensation while overreporting withholding. Often times, the returns would be submitted and processed before the March 31st Form 1099 filing deadline. In other words, the IRS was unable to validate numbers with the payer’s copies until after a refund was issued.
There were also issues caused by the reporting deadline for NEC when it was moved to January 31st since the change essentially created two filing deadlines. It was made worse when an error in the IRS acceptance software marked any e-file submission after the January deadline as late and assessed penalties.
When is the Filing Deadline?
A copy of Form 1099-NEC must be submitted to the independent contractor and the IRS no later than January 31, 2021.
It is important to note that Atlanta companies should continue to use Form-1099 MISC to report payments to individuals and businesses for any of the following purposes:
When is the Filing Deadline?
The filing deadline is March 1, 2021, if filing by paper, and March 31st, 2021, if filing electronically.
Contact Us
As the end of the year quickly approaches it is important to review the new filing requirements and ensure your payroll provider or software system is prepared for the change. If you have questions about the information outlined above or need assistance with a tax or accounting issue, Wilson Lewis can help. For additional information call us at 770-476-1004 or click here to contact us. We look forward to speaking with you soon.
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