Nonemployee Compensation and Backup Withholding
There is a 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.
A TIN can be one of the following numbers:
• Social Security
• Employer identification
• Individual taxpayer identification
• Adoption taxpayer identification
What is backup withholding?
Backup withholding can apply to most kinds of payments reported on Forms 1099 and W-2G. This means that the person or business paying the taxpayer doesn’t generally withhold taxes from certain payments. There are, however, situations when the payer is required to withhold a certain percentage of tax to make sure the IRS receives the tax due on this income. This is backup withholding.