APA supported the IRS’s decision to reinstate Form 1099-NEC, Nonemployee Compensation, in September comments on the early release draft form submitted by the Government Relations Task Force Subcommittee on IRS Issues. The effective due date of February 1, 2021, for the form should provide software developers and payroll and human resource departments with sufficient time to prepare, APA said.
APA Comments
APA asked the IRS to provide additional guidance and inform taxpayers that while there is a new form for nonemployee compensation, the worker classification provisions are unchanged and remain complex. As nontraditional work arrangements continue to increase, understanding the differences between employee and nonemployee compensation and employee and independent contractor classification for purposes of federal tax withholding become more complicated.
Background
Form 1099-NEC has not been used since 1982. The form was replaced by Form 1099-MISC, Miscellaneous Income. Section 201 of the Protecting Americans from Tax Hikes Act of 2015 (PATH Act, Pub. L. 114-113) requires that no credit or refund for a tax overpayment may be issued by the IRS before February 15 each year if a taxpayer is claiming the Earned Income Tax Credit or Additional Child Tax Credit. The reason for the change is to prevent tax refund fraud.
The PATH Act also pushed employer filing deadlines to the same date that taxpayers receive the forms – January 31. However, because the Form 1099-MISC is a catch-all form, the January deadline does not apply to all uses of the form. Some filing deadlines remain February 15. The two different filing deadlines for the same form can confuse employers and IRS employees. Therefore, the IRS is reinstating Form 1099-NEC for reporting nonemployee compensation.
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Alice P. Jacobsohn, Esq., is Senior Manager of Government Relations for the APA.
