This is our annual reminder that if you use workers other than employees to perform services for your business (and those services equal more than $600 for the year) be sure to file worker 1099-NEC for them. You are required to issue each worker a Form 1099-NEC. This is for you to avoid facing the loss of the deduction for their labor and expenses. The 1099s for 2020 must be provided to workers no later than February 1, 2021. While forms are normally due January 31, this year that day falls on a Sunday. Therefore the due date is extended until February 1.
Worker Forms have changed
As you probably noticed, the IRS has switched forms for 2020 reporting. They have resurrected a form that hasn’t been used since the early 1980s—Form 1099-NEC, Nonemployee Compensation. The prior 1099-MISC form was used for reporting more than just nonemployee compensation. However, different reporting dates for different compensation has made it too difficult to track, so the IRS made the change.
1099s reporting non-employee compensation needs to be filed by January 31, 2021. While and the ones reporting other information are not due to the IRS until March 31, 2021
Form 1099-NEC May Apply for Landlords
The requirement to file Form 1099-NEC may also apply to landlords in light of tax reform’s 20% pass-through deduction. (Sec. 199A deduction). The IRS cautions landlords that to be treated as a trade or business, and be generally eligible for the 199A deduction, they must report payments to independent contractor service providers on IRS Form 1099-NEC.
This wasn’t required for rental activities in the past. And still isn’t required when a rental is classified as an investment rather than as a trade or business.
It is not uncommon to have a repairman out early in the year with a bill total of less than $600. But then use his services again later and have the total for the year exceed the $600 limit. As a result, you could easily overlook getting the necessary information such as their complete name, or tax identification number (TIN). Both which are needed to file worker 1099s. Therefore it’s smart to have individuals complete and sign the IRS Form W-9 the first time you use their services. If you have properly completed and signed Form W-9s for all independent contractors and service providers – you eliminate oversights and protect yourself against IRS penalties and conflicts.
What is Form W-9?
The government provides IRS Form W-9 as a means for you to obtain the data required to file 1099s for your vendors. This data includes the vendor’s name, address, type of business entity and TIN (usually a Social Security number or an Employer Identification Number), as well as certifications of the ID number and citizenship status. It also provides verification that you complied with the law should the vendor provide you with incorrect information. We highly recommend that you have potential vendors complete Form W-9 prior to engaging in business with them. The form can either be printed to fill out or completed onscreen and then printed. A Spanish-language version is also available. The W-9 is for your use only and is not submitted to the IRS.
CAUTION: Worker Form 1099-NEC reporting does not apply to household workers, as they are considered employees. If you have questions, call 360-778-2901 for additional information .
To avoid a penalty, the government’s copies of the 1099-NECs must also be sent to the IRS by February 1, 2021. The penalties can be significant, ranging between $50 and $280 for each 1099-NEC filed late. If you failed to obtain a worker’s Social Security number but file the 1099 on time, the penalty for not including the SSN is $50, which is less than the potential $280 penalty for filing late or not at all.
The worker form 1099-NEC must be filed electronically or on special optically scannable forms. If you need assistance with filing 1099-NEC or have questions related to this issue, please give this office a call. You can complete the 1099-NEC worksheet and forward it to Nissen and Associates to prepare 1099s. Also, make sure you have all of your non-employee workers or service providers complete a Form W-9 for 2020.
Year-End Gift Giving with Tax Benefits
