While we’ve all been distracted by things like the attempted coup, it seems that there was an important change in tax reporting that you need to be aware of. Many of you have hired independent contractors and have issued 1099MISC forms to report those payments; this year, it’s different.
If you had payments to independent contractors in 2020, more than $600 to anyone, you need to report those on a new form, called 1099-NEC. Here is the IRS flyer with the full information (pdf), but the short answer is that the 1099-NEC must be provided to your vendors by January 31, 2021 and reported to the government by that same date!
If you have been hired as an independent contractor, you should received your 1099-NEC from your client(s) by January 31, 2021 as well.
It gets a bit more squirrel-y when it comes to payments to attorneys: we can get both forms for the money we receive. It just depends on what kind of payment we get–settlement or payment for our fees.
If you paid a settlement, for example, to an attorney on behalf of a claimant, then you need to report that whole amount (“gross proceeds to an attorney”) on the revised 1099MISC in BOX 10 (it used to be box 14). You must also report that whole amount on a 1099-NEC in BOX 3 sent to the claimant! See the bottom of page 2 and top of page 3 of the pdf I linked to above for examples.
However, if you hired an attorney (like me) directly and paid more than $600 in attorney’s fees to that attorney (or firm–even attorney corporations must have their payments reported), you need to report that on the new 1099-NEC in Box 1.
Leave it to the IRS to make an already complicated system even more so. 😉
Oh, and in some states, these changes mean you need to send information to states differently. You should check your own situation, to be sure. The vendor track1099.com has a tool to check, but best to check with the tax authorities in the states involved.
If you have questions about these new processes, you should contact your CPA for best advice.