Ensure Correct Tax Reporting with Five Form 1099 Tips

SAN ANTONIO, Feb. 3, 2022 /PRNewswire/ -- Last year, big changes were made to the process for businesses to properly record payments to contractors for their 2020 taxes. For the 2020 tax year, the IRS reintroduced Form 1099-NEC, Nonemployee Compensation, to report self-employment income, instead of using Form 1099-MISC, Miscellaneous Information. Ensure your tax reporting is correct for 2021 with these five Form 1099-NEC preparation tips from the American Payroll Association.

1. All Non-Corporate Service Providers Must Receive Form 1099-NEC. If you paid a service provider at least $600 for services during 2021, you must provide a 1099-NEC to them no later than January 31, 2022.

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.

2. Better Safe Than Sorry. If you are unsure if Form 1099-NEC is necessary, send one anyway to the service provider. Otherwise, you set your business up for possible penalties.

3. Make Your Credit Card Work for You. If you paid for contractor services with a credit card, debit card, or gift card, do not file Form 1099-NEC. The bank or credit card company that made the actual payment will take care of it for you by sending the contractor Form 1099-K.

4. Don't Be Confused by the W-2. Although both the Form W-2 and Form 1099-NEC are considered information returns, the forms serve very different functions. The purpose of Form 1099-NEC is to report payments made through a trade or business to a nonemployee.

5. Deadlines Matter. You have until January 31, 2022, to send Form 1099-NEC to service providers by mail or electronically. File Form 1099-NEC by February 28, 2022, if filing on paper, or March 31, 2022, 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 The American Payroll Association