Navigating Year-End – Reviewing Payments to Independent Contractors
Part 4 – Reviewing Payments to Independent Contractors
For the tax year 2020, a new 1099 form has been created: the 1099-NEC. NEC stands for non-employee compensation. So you no longer complete the 1099-MISC for contractors, but rather you now complete the 1099-NEC. These must be prepared and delivered by January 31.
Preparations for filing the 1099-NEC should include a review of payments to independent contractors. And part of that review you need to ensure you have a W-9 form on file for each vendor who is not an “S” or “C” corporation. A fillable, online PDF form is available here. You can email your vendor and request they complete this form (send them the link) and ask them to return the form to you.
Determining who requires a 1099-NEC form is not always easy. This form is required, in general, if you made a payment:
• To someone who is not your employee
• For services in the course of your business
• To an individual, partnership, estate or in some cases corporation, and
• The payment is greater than $600 cumulative for the year
So, even LLC’s get a 1099-NEC unless they have elected to be taxed as an S-corp. You can only know this if you request a W-9 from each vendor. It is the vendor’s responsibility to mark their tax status on the W-9. Click here for IRS instructions regarding the 1099-NEC.