Big Changes for Contractors and Businesses this Tax Season

SAN ANTONIO, Feb. 1, 2021 /PRNewswire/ -- Big changes have been made to the process for businesses to properly record payments to contractors for their 2020 taxes. Ensure your tax reporting is correct with these five Form 1099 preparation tips from the American Payroll Association.

1. Ensure you complete the correct Form 1099. New for forms filed in 2021, employers will not fill out the 2020 Form 1099-MISC, Miscellaneous Income, for hired independent contractors. Instead, businesses must complete Form 1099-NEC, Nonemployee Compensation. The Form 1099-MISC will now be used if your company paid an individual or LLC at least $600 during the year in rent, prizes or awards, or payments to attorneys.

2. All non-corporate service providers must receive Form 1099-NEC. Every service provider you paid at least $600 for services during 2020 must receive a Form 1099-NEC by February 1, 2021 (normally due on January 31, but January 31 is a Sunday this year).

If the service provider is a corporation, you generally do not have to provide Form 1099-NEC. But please note that owners must provide Form 1099-NEC for attorneys' fees and for payments to corporations for legal services. To report payments to an attorney on Form 1099-NEC, you must obtain the attorney's taxpayer identification number (TIN), by having them complete IRS Form W-9, Request for Taxpayer Identification Number and Certification.

3. Put your credit card to work. Form 1099-NEC is not required if you paid a contractor with a debit, credit, or gift card. Instead, the bank or credit card company will do the work for you by sending the Form 1099-K to your contractors.

4. When in doubt, send one out. If you are unsure if Form 1099-NEC is necessary, send one anyway to avoid possible penalties.

5. Deadlines matter. You have until February 1, 2021 to submit Form 1099-NEC by mail or electronic filing. Submit Form 1099-MISC by March 1, 2021, if filing by paper or by March 31, 2021, if filing electronically.

For additional tips and resources, visit www.americanpayroll.org. The American Payroll Association is the nation's leader in payroll and accounts payable education, publications, and training.

SOURCE American Payroll Association

Related Links

https://www.americanpayroll.org

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