Starting in the 2020 tax season, the IRS is bringing back a form to report nonemployment compensation that hasn’t been utilized for 38 years. Although it will have no impact on the preparation of your tax return or tax liability, it is important to properly handle the reporting of the income to avoid future penalties or interest charges.
What Changed?
Beginning with the 2020 tax season, the IRS has changed the way nonemployment compensation should be reported. For the past 38 years, individuals who received nonemployment compensation saw that income reported on Form 1099-MISC in box 7. This income will now be reflected on a different form, Form 1099-NEC.
Who Will This Impact?
Anyone who received any compensation greater than $600 by working as an independent contractor will receive a different tax form this year. Additionally, anyone who hired an independent contractor and paid them more than $600 will need to file Form 1099-NEC with the IRS and provide those individuals with a copy of the form.
Who is an Independent Contractor?
An independent contractor is someone who is paid at least $600 to perform a specific service but has no other ties to a business once that service is complete. Example: An individual is hired and paid $1000 to be a coach at a hockey camp. That individual would be considered an independent contractor and would need to be issued Form 1099-NEC.
What if I Receive Endorsement Income?
If you receive income from providing an endorsement, you will likely be classified as an independent contractor and receive Form 1099-NEC. However, some businesses may interpret the classification of endorsement income differently so it is possible you will receive Form 1099-MISC. You should be on the lookout for either and provide them to us along with your other tax documents. Every business that pays you endorsement income over $600 is required to provide you with a tax document to show that income.
What do I Need to do if I receive Form 1099-NEC?
If you receive Form 1099-NEC, you should provide it, along with any expenses that you incurred related to earning that income, to us along with your other tax documents. If you have received Form 1099-MISC in the past, you should treat Form 1099-NEC exactly the same.
What if I Need to Issue Form 1099-NEC?
If you have hired an independent contractor and paid them $600 or more, you need to file the appropriate forms with the IRS and provide any individuals you paid with Form 1099-NEC. The deadline to do so is January 31 of the current year. AFPTax would be happy to provide any further assistance.
What if I Received (Or Issued) a 1099-MISC in the Past for a Different Type of Income?
Form 1099-MISC is not going away for individuals who have utilized it for anything other than nonemployment compensation in the past. One of the other common uses for Form 1099-MISC is reporting rental income. If you have worked with a rental company to rent your property in the past and received Form 1099-MISC, you should anticipate receiving.
Will This Impact My Tax Liability?
No! The change in how the income is reported is simply using a different IRS Form to show the income. It will have no bearing on how your tax is calculated.