The IRS has drafted a new tax form to be used in 2021 and moving forward. Or, to be more precise, it’s brought back an older tax form. The tax form is the 1099-NEC (non-employee compensation) and is a revival of an older tax form that hasn’t been used since 1982. How is this going to change your tax filing situation? Well, let’s take a look.
Replacing the 1099-MISC Tax Form
For the most part, the 1099-NEC tax form will be replacing the miscellaneous tax form to cover payments made to people who aren’t employees of your company. This includes freelancers, independent contractors, gig workers and other people who aren’t regularly employed by a company, but who take on jobs for them. According to the IRS, the following conditions mean expenses go on this form:
- You made the payment to someone who is not your employee.
- You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations).
- You made the payment to an individual, partnership, estate, or, in some cases, a corporation.
- You made payments to the payee of at least $600 during the year.
Does This Mean The 1099-MISC Form is Gone?
No, it does not. There are still a few items that will go on the old form. These include things like attorney fees, section 409A deferrals, and non-qualified deferred compensation income. Additionally, if you are reporting expenses from years prior to 2020 – such as a payment you missed in 2019, for example – you will still have to file it using the old form even if it otherwise would belong on the 1099-NEC. The IRS set it up this way to make it less confusing.
The reason for bringing back this old form is because of a complication from previous tax codes that created room for fraud. How? Well, it’s complicated, but allow me to give you a simplified explanation. Certain tax codes meant to protect American citizens from sudden tax hikes delayed payouts to people making certain claims, while still requiring that their employers supply them with tax forms before those dates. This allowed people to file their taxes and receive tax refunds before corresponding documentation would be received. Scammers would file bogus tax forms early, getting tax returns they hadn’t earned.
Who Does This Effect?
This change will affect all businesses who hire people for jobs other than regular employment. Independent contractors and freelancers will also need to be aware of the form. The IRS will be providing more information on the forms in 2021 so you can prepare them for your 2020 taxes next year.
You Aren’t On Your Own
The tax forms aren’t terribly complicated, but the way things keep switching around can be exhausting to keep up with. You do one thing one year, another the next, and soon you find yourself unsure what you’re doing at all. You can figure it out yourself, if you want to, but why spend all that time and effort when there are people out there whose job it is to know this stuff?
At Dragon Financial, keeping up with the tax codes is part of the job. Our people are kept up to date on every smallest change to the tax codes and forms. We make sure that everything is done right. Our virtual assistants can help you organize and properly file your tax forms, leaving you with more time to work on the things that matter: running your business!
Want our help? Get in touch with us today! Let us take the stress of keeping up with the (apparently) less confusing tax codes the IRS keeps putting out. You’ll save time, money, and most importantly, you’ll save your sanity!