- November 1, 2024
The Internal Revenue Service expects its citizens to make use of the 1099 Forms to report their income from different sources. These tax forms are of tremendous importance for contract workers and freelancers. Some taxpayers use them as information return forms as well. Of all the 1099 Forms, 1099-MISC and 1099-NEC are very important and are also frequently used by the taxpayers. IRS Form 1099-MISC is used to report payments that are not subject to self-employment taxes, such as prize winnings, rent, legal fees, etc. IRS Form 1099- NEC is used by businesses to report payments made to a contractor. Let us discuss the due dates for filing these Forms with the IRS and the penalties that follow in detail here.
IRS Form 1099- MISC and 1099- NEC
The IRS Form MISC is used to report miscellaneous income such as rent or payments to an attorney, as well as payments such as rent, fees to an attorney, self-employment taxes, prize income, etc. 1099-NEC is used to report independent contractor income.
If a business has paid an individual or LLC at least $600 during the year as rent or as legal settlements or prize or award winnings, it is required to file a 1099-MISC. Similarly, if the business has hired a contractor and has paid them more than $600 in a year, then it has to file Form 1099-NEC with the IRS and send a copy of the Form to the contractor. Form 1099-NEC will not be filed for employees. Instead, employers use W-2 forms to report wages, tips, and other compensation during the tax year.
When does a Business File Form 1099- NEC?
Starting from the tax year 2020, businesses will file Form 1099-NEC to any businesses or independent contractors to whom they have paid $600 or more in fees, prizes, awards, commissions, or as compensation for services performed for the business. If the payment is made for goods and physical products and not for services, then this tax form should not be issued.
If the business paid is a C or S corporation, then a 1099-NEC need not be issued unless the business has been paid for medical or health care payments or payments made to attorney services. Form 1099-NEC is also sent for any business that is an LLC or sole proprietorship.
When does a Business Issues 1099-MISC?
IRS tax Form 1099-MISC for miscellaneous income is a tax form that businesses need to complete to report various payments made throughout the year. One 1099-MISC form should be filed for each person or non-incorporated entity to whom the business has paid at least $10 in royalties or at least $600 for items such as rent, medical, and health care payments.
The IRS has made a number of changes to 1099-MISC, which are as follows.
- Until the tax year 2019, the non-employee compensation payments were also reported on Form 1099 MISC. However, starting from the tax year 2020, they are reported in Form 1099- NEC.
- Box 7 is no longer used to report non-employee compensation; instead, it contacts a checkbox that indicates $5000 or more paid for direct sales services.
- There are also changes made to other boxes in the form that are used to report specific taxation information.
Filing Deadlines for IRS Form 1099-MISC and 1099-NEC
Taxpayers should remember Form 1099-MISC due date and Form 1099-NEC due date to avoid IRS penalties. Starting from the 2020 tax year, the deadline to file IRS Form 1099-MISC is 1st March if the taxpayer chooses to file on paper, and the tax-paying deadline is March 31st if the taxpayer chooses to file the returns electronically.
Similarly, the deadline to file Form 1099-NEC is 31 January of the following tax year, regardless of whether the taxpayer files on paper or electronically. If the deadline for both these tax forms falls on a weekend or a holiday, then the deadline will be moved to the next business day.
There is no automatic 30-day extension to file 1099-NEC Forms, and the IRS will not automatically share this tax information with the states. Businesses are required to send Copy 1 of the tax form to the state tax departments by themselves.
Major Revisions to be Made for IRS Tax Form 1099- MISC and NEC
- The IRS published a revised version of Form 1099-NEC in January 2024. Therefore, taxpayers should make it a point to use the latest version of the tax Form.
- The IRS has published a new tax form, Form 15397. You should fax it to the IRS to request additional time to furnish recipient copies of Form 1099. You can also request an extension of time by filing Form 8809, but Form 15397 should be faxed to the IRS to extend the time for furnishing recipient copies. This helps to avoid penalties.
- Taxpayers who file 10 or more 1099 Forms should file them electronically, subject to penalties if paper forms are failed unless a waiver is requested.
- In the year 2023, the IRS announced a one-day delay in the implementation of the $600 filing threshold for third-party settlement agents. The filing threshold remains at $20,000 for 200 transactions for filing 2023 returns, which means that tax filers need to revise systems and processes to properly report payments due for the tax year.
IRS Penalties for Failing to Meet
If the business fails to remember the Form 1099-MISC due date & Form 1099-NEC due date, it might face hefty penalties from the IRS. The penalty varies from $60 to $330 per Form for the tax year 2024, depending on the number of days the business has not reported its taxes. If the business intentionally neglects its requirement to provide a correct payee statement, then it is subject to a minimum penalty of $660 per Form for the tax year 2024, or the penalty could be 10% of the income reported on the tax Form, with no maximum pay limit.
The penalty could be $50 if the tax form is filed within 30 days. The penalty is $100 if the tax form is filed more than 30 days late but before 1st August. The penalty could be $260 or more if the taxpayer is filed on or after 1st August. This penalty amount will be determined based on when the taxpayer will file the correct information return. If they are not able to file the returns on time, they can request an extension by submitting Form 8809 to the IRS. However, they have to supply the 1099-NEC forms to the contractors by January 31st of the tax year.
If the IRS Form 15397 is completed, corrected, signed, and transmitted successfully to the IRS, then the extended due date for furnishing the 1099-NEC recipient copies would be March 1st of the subsequent tax year.
Penalties for Not Reporting 1099 Income
If the taxpayer receives Form 1099-MISC and Form 1099-NEC that report their miscellaneous income, then this information should also be reported to the IRS. If such taxable income is not included on the tax return, then the taxpayer will be subject to paying a heavy penalty. Failing to report such income will cause the return to understate the tax liability of the taxpayer. In such cases, the IRS can impose a penalty that equals 20% of the underpayment.
To avoid such an underpayment penalty, the taxpayer should include their miscellaneous income on their Form 1040. If the income to be reported is nonemployee compensation, the taxpayer should complete Schedule C and transfer the net earnings to Form 1040. For reporting rents and royalties, the taxpayer should typically complete Schedule E and transfer the applicable amount to Form 1040.
Submitting Different Copies of 1099 Forms to the IRS
Copy A of the 1099 MISC and NEC forms should be submitted to the IRS by 31 January, either by mail or by e-filing. A physical copy of Form 1099-NEC can be requested through the IRS website. If the taxpayer opts to file a paper copy, they have to provide Form 1096 as a cover sheet. After obtaining the contractor’s consent, the taxpayer can email copy B to the contractor. Some areas also require taxpayers to file 1099 Forms with their state.
In order to make the tax filing process quick and crisp, taxpayers should keep their bookkeeping in order throughout the year so that they will have all accurate information handy to file the returns in January. They should also request an updated W-9 Form from every contractor and this should be as part of their onboarding process while joining a team. They should have access to all the accurate information ready when they start to file Form 1099.
Yet another beneficial way to avoid fines and penalties with 1099 Forms is to get help from tax experts like Tax2efile. The experts will uncover all industry-specific deductions to help you file your taxes on time and without errors. They will also ensure that you file the tax Form before the deadline to avoid costly errors and penalties.
