Form 1099-NEC 2020 Checklist
Purpose
Form 1099-NEC reports nonemployee compensation paid to independent contractors and other nonemployees. For 2020, Form 1099-NEC was reintroduced after being discontinued in 1983. Nonemployee compensation previously reported on Form 1099-MISC Box 7 is now reported on Form 1099-NEC Box 1. This form includes a FATCA Chapter 4 account reporting checkbox and identifies whether the recipient's income qualifies as self-employment income under Schedule C or F.
2020 Year-Specific Filing Checklist
Step 1: Verify Recipient Copy B Deadline
Ensure recipients receive Copy B by February 1, 2021. Since 2020 is the first tax year Form 1099-NEC is used after a 37-year absence, confirm payer systems correctly route nonemployee compensation from 1099-MISC Box 7 to 1099-NEC Box 1.
Step 2: Report Fish Purchase Payments Correctly
If you are in the trade or business of purchasing fish for resale, report total cash payments of $600 or more paid to anyone engaged in catching fish. Include these payments in Box 1. “Fish” includes all aquatic life. “Cash” means U.S. and foreign currency, cashier’s checks, bank drafts, traveler’s checks, or money orders, but excludes personal or business account checks.
Step 3: Distinguish Self-Employment Income Categories
Verify that Box 1 amounts are properly categorized for recipient reporting purposes. Self-employment income reports on Schedule C or F with Schedule SE. If the recipient claims employee status, they may use Form 8919. Sporadic or hobby activity income reports as other income on Schedule 1 or Form 1040-NR.
Step 4: Mark FATCA Filing Requirement Checkbox When Applicable
Check the FATCA filing requirement box only if you are reporting under the Chapter 4 account reporting requirements. This applies to U.S. payers who satisfy account reporting obligations or to Foreign Financial Institutions that report U.S. accounts. This checkbox flags potential Form 8938 requirements for recipients.
Step 5: Report Backup Withholding in Box 4
Include any backup withholding amounts in Box 4 if you withheld federal income tax because the recipient failed to provide a valid Taxpayer Identification Number or because of other backup withholding requirements. Report this even if the payment amount is less than $600.
Step 6: Complete State Tax Information Boxes
Fill in Boxes 5, 6, and 7 for state income tax withheld only if required by applicable state law. Box 5 reports state tax withheld, Box 6 shows the payer’s state identification number, and Box 7 indicates the amount of state income.
Step 7: File Copy A with the IRS by the Deadline
Submit Copy A to the IRS by February 1, 2021, since January 31 falls on a weekend. Use only official IRS-printed scannable forms for paper filing. The official printed version of Copy A is scannable, but versions downloaded and printed from the IRS website are not acceptable for IRS filing and may result in penalties.
Step 8: Prepare Form 1096 Transmittal for Paper Filing
If filing on paper, prepare Form 1096 (Annual Summary and Transmittal of U.S. Information Returns) as the cover sheet to accompany Copy A filed with the IRS. Form 1096 is required for all paper filings but not for electronic submissions.
Step 9: Report Nonqualified Deferred Compensation Properly
When nonqualified deferred compensation plans fail to satisfy IRC Section 409A requirements, report the includible amounts in Box 14 of Form 1099-MISC. This same amount must also be included in Box 1 of Form 1099-NEC. The amount reported represents deferrals plus earnings that become taxable due to plan noncompliance.
Step 10: Include Account Numbers When Required
Use the account number field if you maintain multiple accounts for a recipient and file more than one Form 1099-NEC for that person. An account number is also required when you check the FATCA filing requirement box. The IRS encourages the use of account numbers on all Forms 1099-NEC.
Step 11: Verify Recipient Taxpayer Identification Numbers
Obtain and verify recipient TINs using Form W-9. Enter TINs in proper format using hyphens: SSNs, ITINs, and ATINs as XXX-XX-XXXX; EINs as XX-XXXXXXX. Attorneys must provide their TIN regardless of entity type, though certification is not required. Failure to provide a TIN subjects the recipient to penalties and triggers backup withholding.
Step 12: Report Direct Sales in Box 2 When Applicable
Check Box 2 if you made direct sales of $5,000 or more of consumer products to a recipient on a buy-sell, deposit-commission, or other commission basis for resale anywhere other than in a permanent retail establishment. Do not enter a dollar amount in this checkbox.
Step 13: Review Reporting Exceptions
Confirm that you do not need to report payments made to corporations, except for medical and health care services and attorney fees. Also, verify exceptions for merchandise, telegrams, telephone, freight, storage, and similar items. Payments to tax-exempt organizations, government entities, and certain other entities are not reportable.
Step 14: Maintain Proper Records
Keep detailed records that show the date and amount of each payment made during the year, including documentation of services performed, contracts or agreements, and copies of Form W-9. These records support your reporting and help resolve any discrepancies.
Step 15: Furnish Correct Copies to Recipients
Provide Copy B to recipients by February 1, 2021. Copies B, C, 1, and 2 are available as fillable PDFs on the IRS website for easier completion and furnishing of the statements. You may truncate recipient TINs on payee statements, but not on forms filed with the IRS. Payer TINs may never be truncated.
2020 Material Changes and Administrative Updates
Form Reintroduction
Form 1099-NEC was reinstated for tax year 2020 after a 37-year absence. The form was last used in 1982 and discontinued in 1983. Nonemployee compensation must no longer be reported on Form 1099-MISC, Box 7, but instead on Form 1099-NEC, Box 1.
New FATCA Checkbox
A FATCA filing requirement checkbox was added to the 2020 form to identify when payers meet Chapter 4 account reporting obligations. Recipients may have separate Form 8938 filing requirements based on this designation.
Scannable Copy A Requirements
Copy A of the form is scannable only when printed from official IRS stock. The 2020 instructions include penalty warnings that filing a downloaded or self-printed Copy A may result in sanctions due to scanning failures. Order official forms at IRS.gov/orderforms.
Recipient Reporting Guidance
Recipient instructions distinguish three reporting paths for Box 1 amounts: self-employment income on Schedule C or F with Schedule SE; wages or salaries if the recipient claims employee status using Form 8919; or other income on Schedule 1 for sporadic or hobby activity. This explicit guidance was clarified with the 2020 reintroduction.
Accelerated Filing Deadline
The PATH Act of 2015 accelerated the filing deadline for forms reporting nonemployee compensation from February 28 to January 31, eliminating the automatic 30-day extension. This change aligns the recipient and IRS filing deadlines and took effect with the reintroduction of Form 1099-NEC for the 2020 tax year.
Dual Form Filing Requirements
Businesses may need to file both Form 1099-NEC and Form 1099-MISC to report all payments made to independent contractors. Form 1099-NEC covers nonemployee compensation, while Form 1099-MISC continues to report rents, royalties, prizes, awards, medical expenses, and other miscellaneous income.
State Reporting Changes
Unlike Form 1099-MISC, the IRS does not forward Form 1099-NEC data to states through the Combined Federal/State Filing Program. Businesses must file Form 1099-NEC directly with state tax agencies that require it, typically through electronic filing vendors.
Form 1099-MISC Redesign
Due to the creation of Form 1099-NEC, Form 1099-MISC was revised, and the box numbers were rearranged. Box 7 now indicates direct sales of $5,000 or more, Box 9 reports crop insurance proceeds, Box 10 shows gross proceeds paid to attorneys, Box 12 reports Section 409A deferrals, and Box 14 reports nonqualified deferred compensation.
Attorney Payment Reporting
Attorneys’ fees of $600 or more paid for services are reported in Box 1 of Form 1099-NEC. Gross proceeds of $600 or more paid to attorneys in connection with legal services, but not for the attorney’s services, are reported in Box 10 of Form 1099-MISC. The corporate exemption does not apply to payments for legal services.
Nonqualified Deferred Compensation Coordination
When NQDC plans fail Section 409A requirements, the failure is reported in both Box 14 of Form 1099-MISC and Box 1 of Form 1099-NEC. Box 12 of Form 1099-MISC may be used for Section 409A deferrals, though completion is optional. These provisions ensure accurate tax calculation in the event of plan failures.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
