In the category of “everything old is new again,” the IRS announced in late July that it intends to require that nonemployee compensation (“NEC”) paid during the 2020 calendar year be reported on new Form 1099-NEC, instead of being reported in Box 7 of Form 1099-MISC. A draft of Form 1099-NEC was posted on the IRS website for public comments, which are due by September 30. The change comes in response to statutory changes made in 2015 by the Protecting Americans from Tax Hikes (PATH) Act.
Section 201 of the PATH Act accelerated the filing deadlines for Forms W-2 and Forms 1099-MISC reporting NEC to January 31. The change is intended to combat identity theft and fraudulent claims for refund. In prior years, electronic filers had until as late as March 31 to file copies of such forms with the IRS (Forms 1099-MISC) or the Social Security Administration (Forms W-2) and could request an automatic extension to push the deadline back another 30 days. Identity thieves would use the delay between the deadline for furnish copies of the returns (January 31) and filing the forms with the IRS to file fraudulent tax returns with the IRS seeking refunds. By the time the returns were filed with the IRS, the refunds had already been paid.
Taxpayers were first required to satisfy the earlier deadline in 2017 for 2016 Forms 1099-MISC reporting NEC and Forms W-2. Since the PATH Act advanced the deadline, filers have been required to separate Forms 1099-MISC reporting NEC from those without NEC to ensure that the former are filed by January 31. Taxpayers may request an extension by filing a Form 8809, but extensions are extremely limited. The automatic 30-day extension for Forms W-2 was eliminated by temporary regulation beginning with 2016 (and later) Forms W-2, and in 2018, the IRS, issued final regulations eliminating the automatic 30-day extensions for 2018 (and later) Forms 1099-MISC reporting NEC.
The IRS’s decision to dust off Form 1099-NEC, which was last used for the 1982 reporting season, solves administrative burdens for both filers and the IRS. Beginning with the 2020 reporting season, filers will no longer have to separate Forms 1099-MISC reporting NEC from those not reporting income in Box 7, in order to meet different filing deadlines. Likewise, the IRS will be able to determine more easily the applicable due date for application of late filing penalties.
As currently drafted, Form 1099-NEC requires the reporting of NEC in Box 1, federal income tax withheld in Box 4, and state income tax in Boxes 5-7. The form also requires Box 2 to be checked, if the payer made direct sales of $5,000 or more of consumer products for resale by the recipient of the Form 1099-NEC. Consistent with the Form 1099-MISC, additional checkboxes are available to indicate that the payer is reporting payments subject to FATCA or that the payer has been notified twice within three calendar years that the payee has provided an incorrect taxpayer identification number.
For 2019, filers will continue to use Form 1099-MISC to report NEC. When finalized, the new Form 1099-NEC will be used to report NEC paid during calendar year 2020, to be furnished to recipients and filed with the IRS by January 31, 2021.