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Should Your Small Business Be Filing 1099-NEC Forms?

Let’s explore Form 1099-NEC – who is required to file it, who should be furnished it, and its importance in meeting your annual tax return requirements.

Did your small business hire freelance individuals or independent contractors this year? Did you pay them [FL1] $600 or more for their services? While previously you would have reported their payments on Form 1099-MISC, you now must report such payments on Form 1099-NEC. Providing an accurate accounting of non-employee compensation to the Internal Revenue Service (IRS) and furnishing a copy to the recipient of that income will help your small business meet its annual tax reporting requirements.

In what situation should your business file Form 1099-NEC?

For any non-employee, contractor, vendor, freelancer, or individual to whom you paid $600 or more for services, your small business should file Form 1099-NEC. Re-introduced in 2020, the 1099-NEC form requires small businesses to report this type of compensation and provide a copy to the non-employee for their individual tax return.

What’s new on the 1099-NEC form?

Now classified as a continuous-use form, the IRS can update Form 1099-NEC as needed instead of annually. For calendar year 2021 reporting, two such changes involve Box 1 and Box 2 on the 1099-NEC.  First, Box 1 should no longer be used to report cash payments for the purchase of fish for resale purposes. Second, Box 2 may now be used to indicate consumer products totaling $5,000 or more were sold to you for resale (or you may instead use Box 7 on Form 1099-MISC to indicate such sales were made).

When is Form 1099-NEC due?

All 1099-NEC forms must be completed and postmarked (or electronically filed) by January 31. The January 31 deadline also applies to furnishing recipient copies.  The IRS does impose penalties for late reporting, so be sure to have procedures in place to meet the deadline.  You should also check your state tax reporting guidelines to ensure compliance with those requirements.

Can I complete Form 1099-NEC by hand?

Yes, you may order hard copies of Form 1099-NEC directly from the IRS and complete the forms using black ink and block letters. Ensure legibility and accuracy to avoid processing errors that could lead to information reporting penalties.

We Can Help

The tax preparers at KPMG Spark understand the specific uses and differences between the 1099-MISC and 1099-NEC forms. Our managed, online bookkeeping with real-time support can ensure the correct form is filed accurately and on time.

In addition to providing tax preparation that ensures your returns are compliant, KPMG Spark’s dedicated accountants provide year round support, data, and guidance from accountants dedicated to your small business’ success.

You don’t have to tackle your tax preparation on your own. KPMG Spark can provide the bookkeepers and resources to support your business during tax prep and throughout the year. Contact KPMG Spark today and visit with an accounting specialist dedicated to your small to medium sized business success and tax preparation.

 

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG LLP.

This blog article is not intended to address or provide advice concerning the specific circumstances of any particular individual or entity and does not constitute an endorsement of any entity or its products or services.

Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities.

The following information is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

KPMG SparkMay 24, 2022Posted In: Tax Tips

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Form 1099-R: Passive Income Distributions

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