In 2020, the IRS released a new form – Form 1099-NEC. This form is still in use for 2022. While it might not have affected you last year, it may for this year. Therefore, this Client Alert will provide you with some general guidelines and resources to help you determine which form you need to file. It will also address questions that we often receive from clients.
You will still be required to file form 1099-MISC for payments in the amount of $600 or more (unless otherwise noted) made in the course of your trade or business (including not-for-profit organizations) that are related to the following items:
- Prizes and awards (does not include amounts paid to employees);
- Royalties ($10 or more);
- Gross proceeds paid to an attorney in connection with legal services; and
- Any person from whom you have withheld any federal income tax under the backup withholding rules (regardless of the amount of the payment).
Form 1099-NEC is used to report non-employee compensation. This new form replaces form 1099-MISC, Box 7, for reporting non-employee compensation only. You will need to file Form 1099-NEC, Nonemployee Compensation (NEC), for each person to whom you have made payments during the year when the following four conditions are met:
- You made the payment to someone who is not your employee;
- You made the payment for rendered services in the course of your trade or business;
- You made the payment to an individual, a partnership, an estate or, in some cases, a corporation; and
- You made payments to the payee of at least $600 during the year.
Generally, amounts paid to individuals, sole proprietors and partnerships for the items above should be reported. Payments to tax-exempt organizations and corporations (C or S Corporations) are exempt.
Whether or not a 1099 should be issued to a limited liability company (LLC) will depend on how that company is classified for tax purposes. If treated as a single member LLC that is disregarded or as a partnership, payments are reportable. If treated as a C or S Corporation, payments are exempt.
All payments of at least $600 to attorneys should be reported, even if the attorney is a professional corporation.
INFORMATION NEEDED TO FILE
Recipient information (i.e., name, address and tax identification number), amount paid during the calendar year and type of payment are required information.
To assist with procurement of the proper information required to file (i.e., missing taxpayer identification number, current address or tax classification status), you should obtain Form W-9, Request for Taxpayer Identification Number and Certification, from vendors as soon as possible.
Forms must be transmitted to the IRS before the deadline of January 31. However, when the due date falls on a weekend or holiday, it will be due on the next business day. Additionally, other important due dates are as follows:
- File Form-NEC with the IRS on or before January 31, 2023, using either paper or electronic filing procedures.
- A recipient copy of Form 1099-NEC and 1099-MISC is due to be distributed by January 31, 2023.
- File Form 1099-MISC by February 28, 2023 (if filing on paper) or March 31, 2023 (if filing electronically).
RESOURCES AND LINKS
For additional information, visit the following links:
- Instructions for Forms 1099-MISC and 1099-NEC
- The IRS Guide to Information Returns
- Form W-9, Request for Taxpayer Indentification Number and Certification