2020 Forms 1099-NEC and 1099-MISC

The Internal Revenue Service (IRS) released the 2020 Form 1099-NEC, Nonemployee Compensation, which replaces Box 7 in Form 1099-MISC for reporting non-employee compensation. This shifts the role of the 1099-MISC for reporting all other types of compensation. 

The IRS and various states are requiring Form 1099-NEC to be filed by February 1, 2021.

 

1099-NEC

The new 1099-NEC captures any payments to nonemployee service providers, such as independent contractors, freelancers, vendors, consultants, and other self-employed individuals, commonly referred to as 1099 workers.

According to the IRS, a combination of these four conditions distinguishes a reportable payment:

• It is made to someone who is not your employee.

• It is made for services in the course of your trade or business.

• It was made to an individual, partnership, estate, or, in some cases, a corporation.

• Payments were $600 or more for the calendar year.

The following are critical guidelines for reporting with Form 1099-NEC:

• Do verify that the recipient’s taxpayer ID is correct. You must have Form W-9 from each recipient with the current taxpayer ID before you complete Form 1099-NEC.

• Do not use Form 1099-NEC to report personal payments.

• Do not use Form 1099-NEC to report employee wages; use Form W-2 instead.

• Do not report gross proceeds to an attorney (not fees) on Form 1099-NEC; use Form 1099-MISC instead.

• Do not use Form 1099-NEC to report payments of rent to real estate agents or property managers; use Form 1099-MISC instead.

 

1099-MISC

The IRS also redesigned the 2020 Form 1099-MISC due to the removal of nonemployee compensation reporting in Box 7. Data currently reported in Box 7 (Nonemployee compensation) of Form 1099-MISC for tax year 2019 will be required to be reported in Box 1 of Form 1099-NEC for tax year 2020. The revised form includes other changes to the box numbers for reporting miscellaneous compensation.

The following are critical guidelines for reporting with Form 1099-MISC:

• Do report gross proceeds to an attorney (not fees) on Form 1099-MISC.

• Do complete a 1099-MISC if you made royalty payments of at least $10 during the year.

• Do use Form 1099-MISC for miscellaneous income, such as rents, royalties, and medical and health care payments.

• Do not use Form 1099-MISC to report personal payments.

• Do not use Form 1099-MISC to report employee wages; use Form W-2 instead.

For more information, visit the IRS website (https://www.irs.gov/instructions/i1099msc) and refer to the form instructions available here: https://www.irs.gov/pub/irs-pdf/i1099msc.pdf.

Form 1099 Processing: Screen Updates 

To comply with the IRS requirements, changes are made to the Form 1099 Processing application (Accounting » Form 1099 Processing). Electronic files and reports generated by the screen are updated. Some UI items and actions have also been modified, as detailed below.

 

Section/Action	Changes
Tabs	Two separate tabs have been created to allow you to modify 1099 information specific to a report. You can access these tabs when you click Edit on the Actions bar. 1099-MISC tab: Fields that previously displayed on the old screen are now on this tab. 1099-NEC tab: Fields on this tab are new.
1099-MISC tab	Changes include the following: The Exclude this vendor from 1099 reporting check box has been renamed to Exclude this vendor from 1099-MISC reporting. Nonemployee compensation (Box 7) has been moved to Box 1 of the 1099-NEC tab. Other changes to the 1099-MISC form are also reflected.
Generate Work File	Clicking this option on the Actions bar calculates/recalculates amounts for both 1099-MISC and 1099-NEC. There is no option to generate amounts separately for the two forms. When you regenerate the work file, any edits made prior to regenerating will be overwritten.
Other Actions	You can now create electronic files and generate reports for both 1099-MISC and 1099-NEC using this application. Options available on the Other Actions menu are: State IDs Verify Payments Electronic File 1099-MISC Electronic File 1099-NEC Electronic File T5018 Print 1099-MISC Print 1099-NEC Print Options Previously, only the following options were available:  Electronic Filing State IDs Verify Payments Print Print Options

 

 See the online help for more details.

Social Security and Medicare Taxes 2021

The Social Security Old-Age, Survivors, and Disability Insurance (OASDI) taxable wage base increases from $137,700 to $142,800.

The maximum 2021 Social Security OASDI component of the Federal Insurance Contributions Act tax payable by each employee is $8,853.60 or 6.2% of the taxable wage base, up from $8,537.40 for 2020. Employers match the employee amount with an equal contribution.

The Medicare or Hospital Insurance tax rate remains 1.45% and is applicable to all wages paid during the year. An additional Medicare tax of 0.9% applies to individuals with annual earned income of more than $200,000, and $250,000 for married couples filing jointly. While employers are required to pay a matching 1.45% portion of the standard Medicare tax, employers are not required to pay a matching 0.9% portion of the additional Medicare tax.

For 2021, an employee who earns exactly $142,800 is subject to a total FICA tax (Social Security tax plus Medicare tax) of $10,924.20 ($8,853.60 + $2,070.60), up from $10,534.05 for 2020.

Arizona 2020 W-2 Electronic Filing

According to Arizona’s electronic filing specifications for Forms W-2 (Pub 701 as of January 2020), the following are the changes for tax year 2020:

• Beginning with the 2020 tax year (due January 31, 2021), all W-2s and 1099s must be submitted electronically.

• In the RS State Record, positions 298-307, the employer’s EIN must be provided as the State ID number (zero fill to the left).

For more information, see https://azdor.gov/sites/default/files/media/PUBLICATION_701.pdf.

To comply with these changes, Vantagepoint now allows you to create W-2 electronic files for Arizona. When you go to Payroll » Form W-2 Processing » Electronic Filing, you can now select AZ from the Electronic Filing Type drop-down list.

Arkansas 2021 Tax Update

Arkansas’ withholding formula has been updated, effective January 1, 2021. Changes include the following:

• The threshold for adjusting the net taxable income at the $50 range (midrange of $100) increases from $87,001 to $88,001.

• The value of a state withholding allowance increases from $26 to $29.

• The tax rates used in the formula decrease from the range of 0-6.6% to the range of 0-5.9%.

• The income tax brackets have been adjusted.

For more information on the withholding formula, see https://www.dfa.arkansas.gov/images/uploads/incomeTaxOffice/whformula.pdf. 

California 2021 Tax Update

Updates to California taxes for 2021 include the following: 

• The annual standard deduction increases from $4,537 to $4,601.

• The annual exemption allowance increases from $134.20 to $136.40.

• The low income exemption table has been updated for all filing statuses.

• The withholding tax rate table has been updated for all filing statuses.

Hawaii 2020 W-2 Electronic Filing

The Department of Taxation requires employers, whose withholding tax liability exceeds $40,000 annually, to file withholding returns electronically for taxable years beginning on or after January 1, 2020. Refer to the following for more details: https://files.hawaii.gov/tax/news/announce/ann19-11_amended.pdf. 

 

Requirements

If you are an employer or payroll provider who is required by the federal government to electronically file Form W-2, Wage and Tax Statements, or Form W-2C during the year, you must also electronically transmit these informational returns to the Hawaii Department of Taxation. For Hawaii employees and withholding, use the Social Security Administration’s EFW2 and EFW2C format and the Hawaii format specified in this guide: Electronic Filing Specifications Handbook.

 

Due Date

The due date for submitting W-2s electronically is February 28 (February 29 for leap year).

 

Specifications

The file must meet the electronic filing specifications outlined by the Social Security Administration (guide available at http://www.ssa.gov/employer/EFW2&EFW2C.htm) and include additional Hawaii record specifications (fields and layouts), which are detailed in the Electronic Filing Specifications Handbook. 

 

Hawaii Required Fields – Form W-2

Header	Header	Field Recommendations
Code RA	Submitter Record	Required
Code RE	Employer Record	Required
Code RW	Fed. Employee Wage Record	Required
Code RO	Employee Wage Record	Optional
Code RS	Hawaii Wage Record	Required
Code RT	Fed. Total Record (RW)	Required
Code RU	Total Record (RO)	Optional
Code RV	Hawaii Total Record (RS)	Optional
Code RF	Final Record	Required

 

Vantagepoint Solution

To comply with these changes, Vantagepoint now allows you to create W-2 electronic files for Hawaii. When you go to Payroll » Form W-2 Processing » Electronic Filing, you can now select HI from the Electronic Filing Type drop-down list.

Iowa 2021 Tax Update

These are the updates for Iowa: 

• The annual tax bracket thresholds have been adjusted.

• The standard deduction increases as follows:

• From $1,880 to $2,130 for employees who claim one or zero allowances

• From $4,630 to $5,240 for employees who claim more than one allowance

See the following for more details: https://tax.iowa.gov/sites/default/files/2020-11/IA Withholding Formula and Instructions TY2021.pdf.

Maine 2021 Tax Update

The following have been updated for Maine:

• Standard deduction amounts

• Annual withholding tax tables for Married and Single

For more information, refer to https://www.maine.gov/revenue/sites/maine.gov.revenue/files/inline-files/21_wh_tab_instr_1.pdf.

South Carolina 2021 Tax Update

These are the updates for South Carolina:

• The lowest tax rate decreases from 0.8% to 0.5%.

• The state allowance increases from $2,590 to $2,670.

• The standard deduction maximum amount increases from $3,820 to $4,200.

• The income brackets have been adjusted.