Businesses ought to start preparations in advance to issue the new IRS Form 1099-NEC by January 31, 2023.
Form 1099-NEC serves the purpose of reporting payments made as compensation to nonemployees. Here are the essential details you should be aware of.
Equity takeaways
Introduced in 2020, Form 1099-NEC is a relatively recent addition to tax documentation. Before its reintroduction, businesses utilized Form 1099-MISC for reporting nonemployee compensation.
- The IRS made a decision to streamline a persistent challenge for businesses by reintroducing a form that had become less prominent since the 1980s. The changes implemented have notable effects on the process of filing self-employment taxes.
Equity Insights
- Freelancers or independent contractors who receive a payment of at least $600 from a single client are required to receive a 1099-NEC form from that business.
- Additionally, the completion of the form is necessary for any individual for whom federal income tax has been withheld under backup withholding rules, irrespective of the payment amount.
- Nonemployee compensation can include receipt of fees, benefits, commissions, prizes, and awards for services performed by a nonemployee
How to file Form 1099-NEC
- The information pertaining to your business, which includes the business name, street address, telephone number, and taxpayer identification number (TIN).
- The total sum of compensation paid to non-employees in the tax year.
- Federal income tax withheld, which is usually zero unless you are required to follow backup withholding rules for the worker.
- Businesses can obtain the necessary information from nonemployees through a W-9 form.
- The Form 1099-NEC due date is January 31st. For the 2022 tax year, that means the 1099-NEC needs to be filed on or before January 31, 2023, either electronically or by mail.
- The IRS may impose a late filing penalty if you miss the deadline for filing. The penalties for each form vary from $50 to $270.
- Form 8809, Application for Extension of Time to File Information Returns, must be submitted to the IRS by January 31 in order to obtain a filing extension if one is needed. Form 8809 has to be sent rather than submitted online and must be mailed.
Bottom line
- Ensuring clear, accurate, and up-to-date bookkeeping is crucial whether you are the recipient of a 1099-NEC or need to issue one to a contractor. This practice is vital for a seamless tax filing process.
- Equity Taxation offers comprehensive year-end financial statements, including a detailed 1099-specific report, to simplify the tax filing process for you.
For those who seek a more hands-off approach, our Tax plan offers year-round on-demand income tax advisory support. Coupled with an expert team ready to prepare and file your tax return, it provides a comprehensive solution
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