Effective for the 2020 tax year, the IRS has created a new form – the 1099-NEC -to report “Non-Employee Compensation” that was historically reported on the form 1099-MISC. Previously the IRS had required most income provided to individuals, partnerships, and law firms or attorneys that were not wages to be reported on the Form 1099-MISC. This new form requires reporting amounts paid for compensation related items not paid to employees, e.g., subcontractors and attorneys, are now to be reported on the form 1099-NEC.
The change also updates Box 7 of the 1099-MISC to remove the former Non-Employee Compensation and replaces it with “Payer made direct sales of $5,000 or more”. There is no dollar amount that will now be reported on the 1099-MISC box 7.
It’s also important to note that any gross proceeds paid to attorneys or law firms in connection with a legal settlement and not for the attorneys’ services should still be reported on Form 1099-MISC, Box 10. Payments to an attorney or law firms for services provided should be reported on Form 1099-NEC.
If questions arise when you’re getting ready to prepare your 2020 1099 forms as to which forms to utilize or where to report specific payments, feel free to reach out to a Schneider Downs Tax Team member for assistance.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.