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Aprio Cloud Blog

December 9, 2020 at 11:01 AM

Important Changes to the 1099 Filing Process

Written by
Kevin Loiselle
Kevin Loiselle |
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Tax and Compliance, Tips & Tricks

The IRS has made changes to the annual 1099 filing process that most employers have become accustomed to. These changes will be effect for the 2020 tax year and employers can expect a new process and set of forms to complete. This reporting change comes alongside increased penalties for failure to file and/or provide both 1099 forms - these fees can be as high as $500 per payee and $250 per copy not submitted to the IRS.

Form 1099-NEC vs. Form 1099-MISC

Aprio Cloud | 1099 Form Changes BlogThe change does not remove the old Form 1099-MISC but instead creates the new Form 1099-NEC. This new form will be filed starting in January 2021 to report payments that have previously been reported on Box 7 of the Form 1099-MISC. These payments include “nonemployee compensation” which covers a wide range of potential payments.

Given most businesses are likely to file both types of forms, it is important to highlight the distinction between the two and understand the applicable uses for each. The summary table below provides the general requirements for the upcoming tax season:

Responsibilities Form 1099-NEC Form 1099-MISC
Type of Proceeds to Report Payments to non-employees for services in the course of your business that total $600 or more throughout the year Rents, royalties, prizes, other income, fishing boat proceeds, medical care payments, crop insurance proceeds, and payments made to an attorney
Filing Deadline Must be sent to IRS and recipient by February 1, 2021 (e-file and paper file) Must be sent to recipient by February 1, 2021; sent to IRS by March 31, 2021 (e-file) or March 1, 2021 (paper file)
E-File Requirement If you file 100 or more forms per tax year the Form 1099-NEC must be electronically filed If you file 100 or more forms per tax year the Form 1099-MISC must be electronically filed
Federal/State Combined Filing No, IRS will not automatically send Form 1099-NEC to states; separate filing with states required as needed Yes, IRS will send Form 1099-MISC to states as required
Tax Years Applicable Applicable for tax year 2020 and later to report non-employee compensation only Applicable for tax years 2019 and earlier to report non-employee compensation; payments for other proceeds continue to use in tax year 2020 and later

The Bottom Line

The types of payments that have historically required additional tax reporting will not go away but will change this year. If you have previously been subject to filing Form 1099-MISC, you will likely will be required to file Form 1099-NEC  and should ensure that the appropriate breakout of payments adheres to the new reporting procedures.

Aprio is continuously monitoring updates from the IRS that could affect your taxes to make sure our clients are always informed and compliant. We'll keep you up to date on the developments that could affect your personal and professional bottom lines. Schedule a meeting with Aprio Cloud today. 

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Kevin Loiselle

About Kevin Loiselle

Kevin Loiselle, CPA, MST is Aprio Cloud’s Senior Tax Manager. He helps Aprio Cloud clients with US tax filing needs, ensures accurate financial reporting, and gives valuable direction to minimize tax burdens. Kevin also works with clients and their international advisors with global, cross-border tax matters. Kevin has a BS in Accounting and Information Systems from Boston College and a Masters in Taxation from Suffolk University.