2020 1099’S for independent contractors
It’s time to start thinking about 1099’s that may be needed for your independent contractors. If your independent contractors have not completed a Form W-9, they need to do so. Here are some basics you should know.
Changes: Effective with tax year 2020, IRS has introduced new form 1099-NEC (nonemployee compensation) to report contractor payments & attorney fees paid. The 1099-MISC form has been revised to include all other types of payments including rent paid.
Who are you required to send a Form 1099-MISC or 1099-NEC? Businesses are required to send Form 1099-MISC or 1099-NEC to vendors or sub-contractors that you paid for more than $600 of services by check/cash/EFT/ACH/Venmo during the normal course of business.
What are some examples of services? Landscaper, janitorial, repairs, professional fees, rent, etc…
Who are considered vendors or sub-contractors? Essentially, this is a person or company you have paid for services that isn't your employee. The IRS has tests which can be found here https://www.irs.gov/newsroom/understanding-employee-vs-contractor-designation
Do non-profit organizations have to issue 1099s? Yes they do.
What are the exceptions? The list is fairly lengthy, but the most common is that you don't need to send a 1099-MISC or 1099-NEC to:
Vendors operating as S or C-Corporations (you'll find their status out when you get a W-9)
LLCs or partnerships (ONLY if they are taxed as an S or C-Corp . . . (see the W-9 attached)
Sellers of merchandise, freight, storage, telephones or similar items.
Payments of rent to or through real estate agents (typically property managers). However, keep in mind you that you do need to issue a 1099-MISC to a property owner to whom you are paying rent, unless they meet another exception.
Lawyers get the short end of the stick. Ironically, the government doesn't trust that lawyers will report all of their income, so even if your lawyer is 'incorporated', you are still required to send them a Form 1099-NEC if you paid them more than $600 by cash/check/EFT/ACH/Venmo.
Don't worry about credit card payments and PayPal. The IRS allows taxpayers to exclude from Form 1099-MISC or 1099-NEC any payments you made by credit card, debit card, gift card or third-party payment network such as PayPal and Square. (These payments are being reported by the card issuers and third-party payment networks on Form 1099-K.)
The W-9 is your best friend. One of the smartest procedures a business owner can implement is to request a W-9 from any vendor you expect to pay more than $600 before you pay them. Using this as a normal business practice will give you the vendor's mailing information, Tax ID number and also require them to indicate if they are a corporation or not (saving you the headache of sending them a 1099-MISC next year). You can download a W-9 here and we have also attached one for your convenience.
The recipient copies of both forms are due by January 31, 2021. The IRS copies for 1099-NEC are due by February 1, 2021 and the Form 1099-MISC is due by March 31, 2021 when filing electronically. The due date is moved up to March 1, 2021 if filing by paper. Keep in mind that e-filing the IRS copy is required for 250+ vendors. Additional rules may apply. Penalties for late filing may also be imposed by the IRS.
Please contact us if you receive any notices from the IRS related to 1099s as penalties may apply.
If we prepared 1099’s for you last year, then we can use what we have on file, but we’ll need a completed W-9 form for any new folks. If you are unsure or we didn’t complete 1099’s for you last year and you would like for us to take care of that for 2020, just let us know.
