1099-NEC due February 1st (replaces 1099-MISC)

[Michael Plaks]

NEW form 1099-NEC replaced 1099-MISC for contract labor 
THE DEADLINE IS FEBRUARY 1st! 

When, where and how?

The short answer is: obtain form 1099-NEC, fill it out, and mail “copy A” of that form to the IRS and to the recipient by February 1st. However, these are not forms that you can print yourself – they have to be ordered from the IRS and take weeks to be mailed to you.

The least hassle is to submit your 1099s to the IRS online, however not directly with the IRS. This service is provided by 3rd party companies.

Google "1099 eFile" - these companies charge under $5 per form. Some providers allow filing of a handful of forms for free. But – always do your own due diligence, not all providers are trustworthy.

For the recipients, you can mail or email them a printed copy or even a substitute statement.

Warning: Email is NOT secure, and you will expose your contractors to unnecessary risk of identity theft. If you do send them via email – use passwords and encryption or remove the SSN.

Who should receive 1099-NEC?

The other critical question is – whom do I need to send these 1099s to? The general rule is: to anybody who was paid by you for services (work) – if he received from you a total of at least $600 during 2020. This list includes:

• Contractors of all kind
• Wholesalers and birddogs (but not Realtors)
• Consultants, inspectors, and mentors
• Property managers
• Assistants
• Bookkeepers, accountants, and attorneys

Disclaimer about wholesalers: it is a controversial issue, with some of my colleagues claiming that wholesalers do not need 1099s. I recommend that you stay on the safe side and do send 1099s to your wholesalers.

You do not need to send 1099-NEC in these cases:

• You paid the contractor electronically (PayPal or Credit Card). Electronic payment processors issue 1099s themselves. Even if they do not, it’s not your legal responsibility.
• You paid the person a total of less than $600 during 2020
• The person who worked for you is a corporation, and you made payments to his corporation. Warning: this exception applies to corporations only. You still need to send 1099s to all DBAs, LLCs, and partnerships.
• Commissions and fees paid at closing to licensed realtors and mortgage brokers
• Payments for purchasing all kinds of goods, materials, and property, including real estate itself
• Repayments of loans

I do not have my contractors' SSNs - what do I do?

Frankly, probably nothing at this point. Try to reach out to them and get their numbers, but it’s not very likely to happen. Chances are, they will avoid you because they are not planning to report this income. Unfortunately, their cheating can become your problem if the IRS goes after you. Which they do, in case you’re wondering.

Take this as a lesson and make sure to get their social security numbers from now on – before they start any work!

Before they start, they need to complete this one-page Form W-9. You can print this one on your computer, no need for the “official” printed forms.

W-9 asks them to enter their name, address, and tax ID – which can be a SSN, ITIN (for people who are not permanent residents) or EIN (business tax ID). They must sign the form.

My contractor says he is a business and does not need a 1099.

He is wrong.

There is an exemption for corporations, both C-corporations and S-corporations. A lot of people mistakenly think that an LLC is a corporation. It is not! LLCs are not exempt – you do need to send 1099s to most LLC owners.

How do you know if they actually are a corporation? They need to check the “Corporation” box on Form W-9 when they complete it, and they must sign. They can also be an LLC that specifically elected to be treated as a corporation – there is a box for this option, too.

If they signed that they are a corporation, as opposed to a single-member LLC – then you're off the hook.

What about DBAs? DBAs are not business entities. You absolutely need 1099s for them.

But this was not my money!

Sometimes you receive form 1099 for income that is not actually yours or is only partially yours. This is called a nominee recipient. An example would be when you receive compensation that you later split 50/50 with your partner.

In this case, you need to file your own form 1099 showing payment from you as the payer to the actual recipient. You need to file the same variation of form 1099 that you received and include form 1096 as cover page, as well as send “copy B” to the recipient.