One of the biggest year-end tasks, for many businesses, is sending and filing 1099 forms by the January 31, 2021, deadline. For tax year 2020, there is a new form that will change the way you report nonemployee compensation. Depending on how many contractors your business has used this year, and how organized you’ve been about keeping good records, 1099s can become a big project that you don’t want to leave until the last minute. Start now by organizing all of your information and collecting anything you need from your contractors. Here’s a quick rundown of everything you need to know about 1099 requirements for 2020.
Who do I send 1099s to?
You need to send 1099s to all vendors and contractors who are classified as a Sole Proprietor, LLC, LLP, or PC and to whom you have paid over $600 in the past year. You also need to include all attorneys to whom you have paid over $600, regardless of their business structure.
Next, look at how you paid your vendors. If you used a bank draft or check, you’ll need to issue a 1099. If you used a payment service, such as PayPal, that service will issue the appropriate form.
What information will I need for the 1099 form?
You need the legal business or individual’s name, the employer identification number (EIN) or social security number (SSN), and mailing address. If you collected W-9 forms from your vendors, you already have this information on file. You also need to calculate the total amount you paid to the contractor during the calendar year.
We highly recommend collecting W-9s from your vendors before the first time you pay them. Make sure the forms are legible and signed, and update the contractor’s information in your accounting system. Taking this simple step when you hire a new vendor will save you lots of time in January.
What changes have been made this year?
In order to stay compliant with the new 1099 requirements for 2020, here’s what you need to know that’s different from prior years:
- The IRS has added a new form, called 1099-NEC. Employers should use form 1099-NEC to report non-employee compensation. It is no longer reported on the 1099-MISC form.
- 1099-NEC forms must be submitted and sent to recipients (postmarked) by January 31, 2021.
- If machine rental is part of a contract that includes both use of the machine and the person who operates the machine, you should split the invoice to show the machine rental and the amounts paid for the operator services. Machine rental is reported on form 1099-MISC. The fees paid for the operator’s service are reported on form 1099-NEC.
What’s the 2021 deadline for sending and filing 1099s?
All 1099 forms must be filed with the IRS and postmarked to recipients by January 31, 2021.
What happens if I miss the 1099 deadline?
The IRS charges a penalty per late 1099, and that penalty increases based on how far past the due date you file.
- The penalty is $50 per information return if you correctly file within 30 days of the original due date; the maximum penalty is $536,000 per year ($187,500 for small businesses).
- The penalty is $100 per information return if you correctly file more than 30 days after the original due date; the maximum penalty is $1,609,000 per year ($187,500 for small businesses).
- The penalty is $260 per information return if you file after August 1 or do not file required information returns; the maximum penalty is $3,218,500 per year ($1,072,500 for small businesses).
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