Every business needs to file their taxes at the year’s end. Before the year 2020, if you were a freelancer, a small business, or a contractor you were received or issued the 1099-MISC. Now the forms for 2020 have been revised. So in case you are an independent worker, you will get to fill the Form 1099-NEC.
But before we can focus on the new Form 1099-NEC you need to understand what actually the Form-1099 is and how you can fill it.
Intro to the Form-1099
In easy terms, it is an “Information Filing Form” that reports the non-salary income individuals. This is solely for federal tax purposes submitted to the IRS.
The Form 1099-NEC is submitted by those independent workers who are earning more than $600 in a financial year.
According to Form 1099-NEC, Money earned from the tax dividends, interest income, prize-winning, state tax refund, IRA distributions, misc government payments, credit card debt forgiveness, or even the sale of personal property will be submitted to the separate form.
In case you are a small business owner, you will be dealing with the Form 1099-NEC.
The 1099-NEC Form
Whenever you pay the independent contractor or a self-employed person for at least $600 or more in compensation, then the use of the 1099-NEC Form is common. This form informs the Internal Revenue Service about the payments made to the said contractor. The information is used by the IRS so that they can verify your income and the federal income tax levels too.
The employer is to provide a copy of the Form 1099-NEC to the independent contractor and if they don’t then you need to follow up with them. Being an independent contractor you have to report the income on Schedule C (despite the $600).
Time to File the Form-1099
Form 1099 ha two copies:
1 . Copy - A
Any payment paid to the independent contractor is reported on this copy and submitted to the IRS.
2. Copy - B
The same information given in Copy - A is reported on this copy but it is sent to the contractor.
As an independent contractor, you just need to mention our personal income tax return on this copy.
Now the remaining things you need to do is;
1. Collect the Information
You should collect all of the following information;
The total amount paid to the contractor
Contractor’s legal name
Their address
Taxpayer identification number
Before filling the Form 1099, you need to fill out the Form W-9. Perhaps this is the best practice as Form W-9 has all the enlisted information. If you have hired more than one contractor, you will need to fill out a W-9 form for each.
2. Submission of Copy A
You need to submit Copy A of Form 1099-NEC by January 31, 2021, whether it’s electronic or via mail.
You cannot download or just submit the printed version of the form. You need to get a physical form and have it mailed to the IRS.
3. Submission of Copy B
After the completion of Form 1099-NEC, you will need to send Copy B to the contractor by January 31, 2021.
4. Form 1096 Submission
After submitting the physical copy A of the Form 1099-NEC to the IRS, now you need to fill and file the Form 1096 as well.
All the information displayed on Form 1099 is tracked down on Form 1096. The deadline is the same as the rest i.e. January 31, 2021.
5. Submit Form 1099 to State
The location of the business matters. So you may have to file Forms 1099 with the state as well. To ensure this part, check with the CPA for your eligibility.
It’s important to file the forms on the due date you will have to pay the penalty of $530 per statement.