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Payroll Tax Changes and the New Form 1099NEC

What you need to know before filing for the 2020 tax season
February 26, 2021

Becky Harshberger

The new year is here, and that means tax season is upon us. One important thing to note as your production company prepares to file taxes for the 2020 season is the IRS has announced an important and newly reintroduced tax document for reporting Non-Employee Compensation: Form 1099NEC. If your production company is filing 1099’s, this means the 1099NEC will be filed in addition to the standard 1099MISC. If you are wondering why or how to file the new form, stay one step ahead with this guide to understanding the new Form 1099NEC.

Why the change?

The 1099NEC is actually not a new form -- it was last used 38 years ago! On the previous 1099MISC, employers were required to report Non-Employee Compensation (NEC) earlier than the other items on the 1099MISC Form as a result of the Path Act in 2015 (Protecting Americans from Tax Hikes). This created confusion, so the IRS decided to create a separate form to submit this NEC information earlier, hence, Form 1099NEC is now making a comeback.

What gets reported on the 1099 NEC?

  • Prizes, awards, and other types of compensation
  • If you pay independent contractors or loan-outs through accounts payable Backup withholding (i.e., if a vendor doesn’t provide you with a tax information reporting ID number such as FEIN, TIN, or SSN on their W9)
  • State income withholding

Additional insights and tips for filing:

  • 22 states currently require direct filing with them specifically in addition to filing with the IRS: “The IRS and the states have not created the sharing agreement that they have with the 1099MISC because there wasn’t enough time to execute all of the agreements for the 2020 tax year, so there is no agreement in place to share 1099NEC information with the states like the IRS does with the 1099 MISC. So, there are 22 states that require direct filing with them.” - Becky Harshberger
  • If you have more than 250 of either Form 1099NEC or Form 1099 MISC, you’ll be required to file electronically. Note: electronic filing is always the preferred method by the IRS, regardless of quantity.
  • Some states will require electronic filing if you have more than 50 forms to report.

To file electronically with both the IRS and State, you’ll use the FIRE System (Files Information Returns Electronic).

Bonus: If you're using SmartAccounting, recent updates will expedite your filing! In a recent Master Series webinar featuring an in-depth conversation with Becky Harshberger, Vice President & Practice Leader of Payroll Tax, and Neddy Alonso, Senior Manager of Product Support Operations, the experts walked viewers through the new changes so they know exactly how to navigate the SmartAccounting system to properly tag invoices with new codes, pull tax reports, prepare forms, electronically file, and print the 1099NEC and 1099MISC forms.

Ready to dive in? Watch the webinar now at theproductioncommunity.com. And if you have questions or want to see what others have to say about the new 1099NEC filing process, join the conversation over at the Production Community Forums!

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