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Which IRS Form Should You File if You Paid Independent Contractors in 2020?

Which IRS Form Should You File if You Paid Independent Contractors in 2020?

The IRS is constantly updating and replacing the various forms that it requires of businesses and taxpayers, and tax year 2020 is no exception. This year businesses that pay non-employees, including independent consultants, will need to become familiar with Form 1099-NEC, a form that replaces Form 1099-MISC box 7.

Understanding the Ins and Outs of 1099-NEC

If you have previously made payments of $600 or more to freelance writers, graphic designers, cleaning professionals, landscapers or similar businesses, you reported those taxes using 1099-MISC box 7. That form was previously dedicated for recording a business’ payments to independent consultants, sole proprietors, or members of a partnership. Those payments now need to be reported using the new form, 1099-NEC, which must be filed either by paper or electronically to both the IRS and recipients by February 1, 2021 this year (though in future years the due date will be January 31st).

Understanding the Ins and Outs of 1099-MISC

Though 1099-MISC’s box 7 is no longer being used for reporting these payments, it will continue to be used to report payments over $600 in prizes, awards and rent for any royalties of $10 or more.

How to Approach this Year’s Tax-Filing for Independent Contractors

The form changes reflected above relate to changes in the tax laws surrounding independent contractors. To ensure that you are meeting your reporting obligations, keep the following in mind:

  • If you work with independent contractors during the course of the year, be sure to have them complete Form W-9 long before it is time to submit Form 1099-NEC.
  • Ensure that you have an accurate taxpayer I.D. for every independent contractor with whom you work.
  • When preparing to fill out Form 1099-NEC, double check to make sure that you aren’t using it to report either personal payments or employee wages

Contact Your Tax Professional for More Help

If you have any questions about the appropriate use of the 1099-NEC or any other tax forms, contact your tax professional today.

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Frank Jenkins Jr

Frank Jenkins Jr

Frank Jenkins Jr. is the managing partner of Adams, Jenkins & Cheatham, a CPA practice based in Midlothian, VA. Frank specializes in Consulting services, tax planning, accounting, audit & assurances. "I genuinely care about our clients because I have a personal connection with them. This job requires me to multi-task and work under tight deadlines. I get great professional satisfaction from balancing firm and client commitments while building a strong team here at AJC."

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