Independent contractor payments that were previously recorded in Box 7 of Form 1099-MISC will now be reported in the renewed 1099-NEC form starting in the tax year 2020. But who fills out 1099-NEC forms? What Businesses Need 1099-NEC Any business that pays out non-employee compensation to any contract labor for more than $600 in the taxable year must fill out a 1099-NEC by January 31 so that the contractor can file it with their taxes after that. There are a few different payment types that fall under non-employee compensation: fees, commissions, prizes, awards, and other forms of compensation for services. Some examples of compensation that qualifies for 1099-NEC reporting include the following circumstances: Professional service fees – to attorneys, accountants, architects, contractors, engineers, etc. Payments for services like parts or materials used to carry out the services Director’s fees and other remuneration (i.e. payment) Does the Contractor File or the Business That Hired Them? The business that hired the contractor is responsible for the 1099-NEC, but it is the responsibility of the contractor to prepare and send a W-9 form prior even to paying the contractor so that the hiring business has all the proper records to accurately prepare and file the 1099-NEC. The hiring business prepares and sends the 1099-NEC form to the IRS, with copies going to the independent contractor and the state tax department, if applicable. The independent contractor will need to record all information on the W-9 they send with the rest of their tax documents. Who Qualifies for an Extension? Businesses who need an extension must file a paper request. The following reasons will have their request granted/approved: The person or business who is filing suffered a “catastrophic event in a federally declared disaster that made the filer unable to resume operations or made necessary records unavailable” Operations were affected by the death, …
Types of 1099s and When to Use Them
The most common 1099 forms are 1099-MISC, 1099-INT, 1099-DIV, 1099-K, 1099-B, 1099-G, and 1099-R. There are more than a dozen different types of 1099 forms, each with a different purpose and importance. Let’s run through each 1099 form and what they’re used for. 1099-A This form is for Acquisition or Abandonment of Secured Property. This is typically used when property has been transferred due to foreclosure. 1099-B This form is for Proceeds from Broker and Barter Exchange Transactions. It is used by brokerages and barter exchanges to record customer gains and losses in a tax year – stocks, commodities, regulated futures contracts, foreign currency contracts, forward contracts, debt instruments, options, securities futures contracts, etc. 1099-C This form is for Cancellation of Debts. Lenders and creditors file this form if a debt of $600 or more has been canceled. 1099-CAP This form is for Changes in Corporate Control and Capital Structure. This form is used to report shareholders who have received cash, stock, or other property through an acquisition or other significant change in structure of capital. 1099-DIV This form is for Dividends and Distributions. You must file this form if you own stock or securities and receive more than $10 in distributions like dividends, capital gain distributions, or nontaxable distributions paid on stock and liquidation distributions. 1099-G This form is for Certain Government Payments. Use this form to report unemployment compensation, state and local income tax refunds, agricultural payments, and grants that are taxable. 1099-H This form is for Health Coverage Tax Credit (HCTC) Advance Payments. This form is used to report advance payments of qualified health insurance payments for the benefit of eligible trade adjustment assistance (TAA), alternative TAA, re-employment TAA, or Pension Benefit Guaranty Corporation (PBGC) payees and their qualifying family members. 1099-INT This form is for Interest Income. …
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Filing 1099-NEC: Dos and Don’ts
The IRS has re-introduced the 1099-NEC form for reporting non-employee compensation in an effort to smooth out the reporting process for contract labor and other related costs. Here are some of the main dos and don’ts of filing 1099-NEC. Do: File 1099-NEC Forms for Non-Employee Compensation The IRS requires reporting payments that are: made to someone who is not your employee, made for services in the course of trade or business dealings, or payments over $600 for the calendar made to an individual, partnership, estate, or even sometimes a corporation. Some examples of this include professional service fees to attorneys, accountants, or architects, fees paid between two professionals, payments for services, even parts and materials, and commissions. Don’t: Report Exceptions These exceptions do not need to be reported: payments for phone, freight, telegrams, storage, or merchandise and the like and payments for a foreign government, tax-exempt organizations, tax-exempt trusts, and payments to governments at the federal, state, and local levels. Do: Verify Recipient Taxpayer ID One of the first things you need to do is verify each recipient’s taxpayer ID. In order to complete the 1099-NEC for your contract workers, you must also have a form W-9 given to you by each recipient. Don’t: Use Form 1099-NEC for Personal Payments A big thing to remember about the new 1099-NEC form reporting is: don’t use the form 1099-NEC to report personal payments. Do: Mind Your Due Dates When filing and submitting these forms, remember the due date to distribute 1099-NECs to recipients is January 31 – though this date falls on a Sunday for 2021, so February 1 will be the deadline for the year. You must also be sure to file with the IRS by January 31 (again, February 1 for the year 2021). Don’t: Use Form 1099-NEC for Employee Wages In the same way that personal payments aren’t reported on the 1099-NEC, this form is also not for reporting employee wages. Make sure not to …
Filing As an Independent Contractor
If you were hired as a freelancer or independent contractor and your total earnings were more than $600, you will need to file taxes using the renewed 1099-NEC form for the tax year 2020. What is an Independent Contractor? An independent contractor is a person or business that provides goods or services under contract or verbal agreement. Though this agreement means the independent contractor works for another company, the independent contractor is not considered an employee of that company. Being an independent contractor gives you the freedom to set your own schedule or to supplement your day job income, but that means you are the only one responsible for tracking and reporting those freelance earnings on your taxes. Here are some tips to help you when filing as an independent contractor. 1099-MISC vs 1099-NEC 1099 forms are the most common forms used by businesses that hire independent contractors. In the past, Box 7 on the 1099-MISC is where businesses reported their payments to contractors, but starting in the tax year 2020, the IRS has renewed the 1099-NEC (non-employee compensation) form and that is going to take the place of the 1099-MISC for freelance wage reporting. Self-Employment Taxes Self-employment taxes are taxes consisting of Social Security and Medicare taxes for individuals who work for themselves - since you don’t have an “employer”, you have to account for these taxes yourself if you are an independent contractor. You determine your self-employment tax using Schedule SE on the Form 1040 or 1040-SR. The self-employment tax rate is 15.4% and consists of two parts: 12.4% for social security and 2.9% for Medicare. For 2020, according to the IRS, the first $137,700 “of your combined wages, tips, and net earnings are subject to any combination of the Social Security part of self-employment tax, Social Security Tax, or railroad retirement (tier 1) tax.” Self-employment taxes tend to be higher than traditional employee taxes …
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