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Form 1099-NEC Information Returns

As the new year begins, so does the 2021 tax reporting season. In January, all Form 1099s are due to be mailed to the recipients no later than January 31, 2022.

Over the past few years, the American workforce has changed substantially due to COVID, employees working remotely and the Great Resignation.  As recent as 20 years ago most taxpayers earned wages which were reported on Form W-2. However, a recent study showed that in 2020 36% of the US workforce were freelancers, 12% of them became freelancers as a result of the pandemic.  The IRS reported that applications for Federal Employer Identification numbers doubled in 2020. It is estimated that 42% of the US Workforce will be freelance by the end of 2021.

Because of these changes, the IRS and many state Departments of Revenue are ramping up their efforts to tracking of this source of income. The IRS issued many new or additional requirements for 1099 reporting.

It is safe to say that the IRS and state Departments of Revenue view Form 1099s with the same importance as the Form W-2.

Here is a summary of these changes:

  1. Form 1099-NEC must be mailed to all recipients on or before January 31, 2022. They must also be e-filed with the IRS by this date. If you have less than 250 recipients, you may paper file the 2021 Form 1099-NEC. Beginning next tax year 2022 (2022 Form 1099-NECs which are filed by January 31, 2023), the e-file requirement has dropped to 100 recipients.
  2. The IRS does not permit extensions to file Form 1099-NEC.
  3. Beware of state reporting requirements – if you are paying a vendor from another state, it is wise to look up the 1099-NEC reporting requirements for that state. Most states receive 1099-NEC information from the IRS through a file sharing program.  Unfortunately, the information is not shared by the IRS until May/June. A few states (PA, VA, VT to name a few) feel that they cannot wait. They require the 1099-NEC be filed directly with their Departments of Revenue no later than January 31st.
  4. Payments made by credit card, PayPal or Venmo do not need to be reported on a 1099-NEC. The credit card companies, PayPal and Venmo file the transaction information directly to the IRS and states via another reporting method. Also see #5 below.
  5. Consider changing your Accounts Payable practices – since payments made by credit card, PayPal or Venmo are not required to be reported on a 1099-NEC it may be more efficient pay them this way rather than issuing checks. If the recipients are out of state, it makes it even more efficient to pay via these methods because you would not need to monitor the state Form 1099-NEC filing requirements.  The burden of the reporting would fall on those companies.

As the workplace continues to evolve, the IRS and state Departments of Revenue are updating their requirements for reporting 1099-NEC income. Hopefully, this article has helped raise the awareness of the changes as well as many more changes to come. Please contact your Wegner CPAs’ tax specialist if you have any 1099 questions or concerns.

 

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