IRS Releases 2021 Form 1099-NEC and Draft Instructions

IRS Releases 2021 Form 1099-NEC and Draft Instructions

The IRS has released the 2021 version of Form 1099-NEC (Nonemployee Compensation) and draft instructions for Forms 1099-NEC and 1099-MISC.

Background. Beginning with the 2020 tax year, a payer must file Form 1099-NEC for each person in the course of the payer’s business to whom the payer has paid at least $600 during the year for services performed by someone who is not the payer’s employee. This information was previously reported in box 7 of Form 1099-MISC.

Other payments over $600 that a payer makes in the course of the payer’s business for things such as rent and “other income payments” are reported on Form 1099-MISC.

2021 Form 1099-NEC. A checkbox has been added to box 2 and the box has now been labeled in the 2021 version “Payer made direct sales totaling $5,000 or more of consumer products to recipient resale. In 2020, this box was unlabeled. Box 3 remains unlabeled. The checkbox to indicate “FACTA filing requirement” has been removed from the form.

The Instructions for Recipient have been revised to inform recipients that they have received Form 1099-NEC instead of a Form W-2 because the payer does not consider the recipient to be an employee and therefore no income tax or FICA tax has been withheld. Instructions are provided to the recipient if they believe that they have been misclassified as an independent contractor.

2021 Form 1099-NEC and 1099-MISC draft instructions. The draft instructions note that payers may use box 2 on Form 1099-NEC (Payer Made Direct Sales Totaling $5,000 or More) or box 7 (Payer Made Direct Sales of $5,000 or More) on Form 1099-MISC to report any sales totaling $5,000 or more of consumer products for resale, on buy-sell, deposit-commission, or any other basis. For 2020, this was reported solely on Form 1099-MISC.

The draft instructions for Form 1099-MISC note that box 11 should include any reporting under Code Sec. 6050R, regarding cash payments for the purchase of fish for resale purposes, from an individual or corporation who is engaged in catching fish. For 2020, this was reported on Form 1099-NEC.

Electronic filing of returns. A filer of more than 250 information returns (such as Form 1099-NEC) in a calendar year must file the returns electronically. The IRS is looking into lowering the 250-return threshold.

If the IRS does lower the threshold effective for 2021 tax returns required to be filed in 2022, the IRS will post an article at IRS.gov explaining the change.

Original content by Thomson Reuters/Tax & Accounting, 2020.  This information is provided with the understanding that Payroll Partners is not rendering legal, human resources, or other professional advice or service. Professional advice on specific issues should be sought from a lawyer, HR consultant or other professional.