What’s New with Form 1099?
Editor's note: This post has been updated with new information regarding when agencies (that file electronically) must send recipients Forms 1099-MISC and 1099-G. The correct date is January 31, 2021. We regret the error.
It’s been said that the only thing certain in life is death and taxes. In local government finance, the only certain thing is filings and audits. January marks the beginning of filing season, and the Internal Revenue Service (IRS) starts off the filing season with the requirements of W2/W3s and the various 1099 forms.
For a discussion of finance items agencies should be working on in January, you can check out a previous blog post from Toni Nelson, MRSC’s longtime Finance Consultant. This blog will solely focus on 1099s and the associated 1096 forms.
Changes to 1099s
This year there are several changes you should be aware of regarding 1099s.
Form 1099-NEC has been added
The first change is that beginning tax year 2020, agencies are required to use the new Form 1099-NEC to report nonemployee compensation (NEC). According to instructions provided by the IRS, Form 1099-NEC must be used:
[F]or each person in the course of your business to whom you have paid the following during the year:
At least $600 in:
Services performed by someone who is not your employee (including parts and materials) (box 1);
Cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish (box 1); or
Payments to an attorney (box 1).
It should be noted that an attorney’s fee for services is reported on the 1099-NEC; however, fees paid to an attorney as part of a settlement agreement is considered miscellaneous income and must be reported on 1099-MISC (Miscellaneous Income).
For reporting year 2020, this means that most of the vendors who were previously provided a Form 1099-MISC will now receive the new Form 1099-NEC. Since January 31, 2021 falls on a Sunday both the recipient (vendor) and the IRS must receive Form 1099-NEC on or before February 1, 2021, using either paper or electronic filing procedures. It is important to note that the automatic 30-day extension has been eliminated with the revisions to the Forms 1099-MISC/1099-NEC.
Form 1099-MISC updates
With regards to filing Form 1099-MISC:
- For agencies that file by paper, typically Form 1099-MISC must be received by the recipient on January 31, 2021, and filed with the IRS by February 28, but since this date falls on a Sunday in 2021, the new date is March 1, 2021.
- For agencies that file electronically the recipient must still receive Form 1099-MISC on or before January 31, 2021, but the date for filing this form with the IRS is March 31, 2021.
- If amounts are reported in box 8 or 10 on the 1099-MISC, then statements need to be furnished to recipients by February 16, 2021.
With the addition of Form 1099-NEC, the box numbers on Form 1099-MISC have been rearranged. You can find those changes in the Instructions for Forms 1099-MISC and 1099-NEC on the IRS website.
Form 1099-G: required for Coronavirus Relief Fund recipients
For those cities, towns, and counties that received funding under the CARES Act from the Coronavirus Relief Fund (CRF) in 2020 and then distributed those funds to small businesses, you will need to file Form 1099-G. Distribution of grant funds in excess of $600.00 are considered taxable under IRS regulations (see 2020 Instructions for Form 1099-G). The only exception to the 1099-G requirement would be CRF grant proceeds to a federally recognized Indian tribal member to expand an Indian-owned business on or near a reservation.
If CRF funding was used to establish a loan program, the receipt of loan proceeds are not reported; however, there are exceptions regarding loans, which are discussed on the IRS website on their CARES Act Coronavirus Relief Fund frequently asked questions webpage.
Form 1099-G has the same filing deadlines in 2021 as Form 1099-MISC: It must be received by recipients by January 31, 2021, and filed with the IRS by March 1, 2021 (for agencies that file on paper) or March 31, 2021 (for agencies that file electronically).
Form 1096: include with each 1099 form filed
Form 1096 is a separate filing form that must be completed for each of the 1099 form types filed. A Form 1096 must be filed along with copy A of Forms 1099-G, 1099-MISC, and 1099-NEC. This means that if your agency is reporting Forms 1099-MISC and 1099-NEC, you would need to file a Form 1096 with Forms 1099-MISC and a second Form 1096 with Forms 1099-NEC.
Contact Us with Additional Questions
If you have any questions about these specific federal reporting requirements for 1096/1099s or W-3/W-2s, please do not hesitate to email me at firstname.lastname@example.org, use our online Ask MRSC form, or call us at (206) 625-1300 or (800) 933-6772.
Happy New Year, and here’s hoping that 2021 is better than 2020.
MRSC is a private nonprofit organization serving local governments in Washington State. Eligible government agencies in Washington State may use our free, one-on-one Ask MRSC service to get answers to legal, policy, or financial questions.