Article

Prepare Now for the New 2020 Form 1099 Filing Process

by Jenn McCabe, Eric Thomas
December 16, 2020

The IRS made several changes to the Form 1099-MISC for 2020 and issued the new form 1099-NEC. This will pose additional challenges as your accounting team tries to tie up year-end tasks if you are not prepared. The new requirements are not only time consuming, but also quite costly if mistakes are made. Here’s what to do now to set yourself up for success.

Understand the Changes to the Form

Start by getting a clear understanding of what exactly has changed. The most significant impact is that there is now a new 1099-NEC (non-employee compensation) form. Most businesses are used to filing the 1099-MISC (Box 7) for independent contractor compensation. The IRS has materially changed the MISC form to the extent that in most cases, companies will no longer use it for this purpose. Instead, you will need to file the 1099-NEC for all non-employee compensation.

The 1099-MISC is still available for true miscellaneous compensation, but beware of several changes to the form itself. The box numbers after Box 7 have been shuffled around. (See our FAQ for more information.)

Check Your Software - Twice

First, some software solutions require an upgrade that will allow the filing of the new 1099-NEC form to report non-employee compensation.  Some upgrades can be significant upgrades that will require a longer lead time.

Second, with this latest regulatory update, the IRS is requiring more filers than ever before to send their 1099 documents electronically and will be penalizing those who continue to file on paper forms. The new electronic filing requirement applies to any company with 250 or more forms, and by next year this is likely to come down to 100 forms.

Unfortunately, not all software systems have this capability. Check what software you have available to you and whether it allows electronic filing or if upgrades are required. Plan ahead to make sure any necessary upgrades can be completed efficiently and on time.

Review and Update Your Vendor Data

For the smoothest possible filing process, take a look at your vendor data now and start making any needed updates. Individuals may not always use their full and complete legal names on all documents. You’ll need to make sure the data you have for your contractors matches IRS records. It’s a best practice to have a W-9 on record for every recipient of every payment.

File Before the Deadline

The new 1099-NEC is due to recipients and to the IRS by February 1, 2021 (as January 31 falls on a weekend). All other 1099 forms must be delivered to recipients by February 1, 2021, and to the IRS by March 31, 2021. This is extremely tight timing for accounting departments that are already busy finalizing 2020 year-end accounting records.

It’s important not to be late. The penalties for late filings start at $50 per form if less than 30 days late and can go up to annual maximums of $3.2 million for large businesses and $1.1 million for small businesses.

Need Assistance?

We are here to answer questions about the new reporting and filing requirements and can help you along in the process. Contact our experts or visit our 1099 Filing Service page to learn more.

December 15, 2020

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Authors
Jenn McCabe - Partner, Outsource HR - El Segundo CA | Armanino
Partner
Eric Thomas - Partner, Consulting - San Ramon CA
Partner
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