New reporting standards for nonemployee compensation

Nonemployee compensation will now have its own form for filing. The IRS has brought back the Form 1099-NEC starting with the 2020 tax year. The form will report the same information as the Form 1099-MISC has previously. The separate form continues the recent focus the IRS has placed on properly identifying employees vs. independent contractors.

Generally, the amounts reported on Form 1099-NEC are subject to self-employment tax, any amounts that would not be subject to this should be reported in box 3 of Form 1099-MISC. Below is a list of several examples of payments to be reported on Form 1099-NEC if they exceed $600.

  • Professional service fees
    • Attorneys, accountants, architects, contractors, engineers, etc.
  • Payment for services
  • Commissions paid to nonemployee salespersons
  • Fees paid to a nonemployee
  • Taxable fringe benefits for nonemployees
  • Directors' fees

Form 1099-NEC has the same due date as other payroll reporting, February 1, 2021. 

If you have questions on determining the difference between an employee and an independent contractor, our accountants at MMKR are here to help