Form 1099-MISC is used to report miscellaneous income by businesses and is been approved by the IRS to make a certain type of payment. This form covers a range of payments that one receives such as royalties, rent, awards, prizes, and even substitute payments in the form of dividends. Most commonly this form is used to report one’s earning when they work as freelancers or as independent contractors.
Form 1099- MISC by the IRS
The 1099- NEC is the form by the IRS for reporting independent contractor payments of at least $600 or more in the course of the business. The 1099- MISC is meant for items such as rent, healthcare payments, and royalties. For those who are accustomed to filing Form 1099-MISC for non-employee compensation, then it is time that they change the form for their 2020 returns filing. There are many tax advantages to earn non-employee income through the Form 1099-MISC and the employee can also claim deductions that relate to their profession.
Revised instructions about the Form 1099-MISC
- Title change:
The title of the Form 1099-MISC has been changed from Miscellaneous income to miscellaneous information. Section 6071 c requires you to file the form on or before January 31, 2021, either through paper or electronic filing procedure. It is possible to fill the form in PDF format, online to retain the files.
- Trade and business reporting:
Individuals or organizations should report on Form 1099- MISC only if their payments are being made in their course of trade or business. Personal payment need not be reported. Nonprofit organizations are also considered to be engaged in a business or trade and are subject to the reporting requirements. Payments of federal, state, and local government agencies, trusts of qualified pension, and profit-sharing plans of employers should also be reported.
- Golden parachute payment:
Payments that are made in the form of compensation, a payment that is made for the benefit of a disqualified individual, or a payment that is made towards the change in the ownership of a corporation are considered as golden parachute payments and should be reported under Form 1099- MISC.
- Other Observations:
Payers must use Form 1099-MISC to report sales that total $5000 or more of consumer products from the year 2020. Payers were formerly using box 2 on the form 1099- NEC for payments totaling $5000.
- Electronic filing of returns:
A filler who has more than 250 information returns in a year should file the returns electronically and the IRS is also looking to lower this 250-return threshold further. We can expect the IRS to communicate on this change shortly.
Those who fail to file the Form 1099- MISC with the IRS before the due date can attract a penalty. The penalty can also be imparted if returns are filed through the wrong mode. Thus apart from changing the name from Miscellaneous income to Miscellaneous information, IRS has also made several changes to its guidelines for the benefit of taxpayers.