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, illness, or unavoidable absence of the individual who is responsible for filing information returns
- Filer’s operation was affected by a fire, casualty, or natural disaster
- Filer was in the “first year of establishment”
- Filer never received the payee’s statement, including Schedule K-1, Form 1042-S, or the statement of sick pay required under IRS regulations in time to prepare an accurate return.