The IRS has released form 1099-NEC (Non-Employee Compensation) for reporting money a business pays to independent contractors. This new form will replace box 7 on the 1099-MISC form. Most businesses will have to file two separate forms, as employers will still need to use the 1099-MISC form for reporting rent, royalties, healthcare payments, awards, and other income. If you are currently using box 7 on the 1099-MISC form, you will have to move that info to box 1 on the 1099-NEC to report nonemployee compensation for 2020.
Payments of $600 or more to a service provider will be captured by the new form. Employers must use the form for work done by an independent contractor, including vendors, consultants, freelancers, landscapers, and other self-employed individuals.
The IRS defines a reportable payment as a combination of these four conditions:
- It is made to someone who is not your employee.
- It is made for services in the course of your trade or business.
- It was made to an individual, partnership, estate, or, in some cases, a corporation.
- Payments were $600 or more for the calendar year.
Instructions for using both Forms 1099-NEC and 1099-MISC to report non-employee compensation for 2020 can be found on the IRS website.
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