In IRS Tax Tip 2020-80, the IRS explained new Form 1099-NEC, Nonemployee Compensation for business taxpayers who pay or receive nonemployee compensation.  Starting in tax year 2020, payers must complete this form to report any payment of $600 or more to a payee.

Generally, payers must file Form 1099-NEC by January 31. For 2020 tax returns, the due date is February 1, 2021. There is no automatic 30-day extension to file Form 1099-NEC. However, an extension to file may be available under certain hardship conditions.

Nonemployee compensation may be subject to backup withholding if a payee has not provided a taxpayer identification number to the payer or the IRS notifies the payer that the TIN provided was incorrect PDF.

A TIN can be one of the following numbers:

• Social Security
• Employer identification
• Individual taxpayer identification
• Adoption taxpayer identification

California Filing Requirements

Because the IRS will not be providing copies of 1099-NEC filings to state taxing authorities, there is now a California 1099-NEC filing requirement.  A paper or electronic copy of the form 1099-NEC must be filed with California Franchise Tax Board (FTB) directly, even if you filed it with the IRS. For 2020, the due date is:

• February 28, 2021 for paper
• March 31, 2021 for electronic submissions

Extensions may be requested to file electronically by submitting FTB Form 6274A. FTB web page Information Returns for more information including mandatory electronic filing requirements.

Because of this departure from IRS normal information return procedure, a lot of questions have been raised.  Here are some answers:

• Other 1099 series form have not been affected.  IRS will continue to provide other 1099s to the FTB.

• IRS Form 1096 must also be sent the FTB.  It can be the red Form 1096, or a black & white copy.

• Up to 249 paper 1099-NECs may be filed with the FTB.  250 or more must be filed electronically using Secure Web Internet File Transfer (SWIFT).

• 1099-NECs should be sent to the FTB at P.O. Box 942840, Sacramento, CA 94240-6090.

• Because this is a new filing requirement, FTB has advised that they will make a pre-penalty determination of reasonable cause for any failure to timely file a 2020 tax year Form 1099-NEC with the FTB.

(This is Blog Post #957)