The IRS is typically on the ball when it comes to changing their forms. After all, the organization is perhaps the “king of forms” and juggles hundreds of forms, schedules, and instructions to manage the complex U.S. tax code.
That’s why it was so surprising when they made a rather glaring error on the updated 1099-MISC. The mistake: assigning two different deadlines to the same form. (Oops.)
Their solution: separate non-employee commission from all the other income types reported on the 1099 to create the new 1099-NEC form.
Here’s what you need to know about the 1099-NEC.
What Is 1099-NEC?
The new 1099-NEC separates non-employee compensation from all other forms of compensation, such as royalties, rents, and other income payments.
Why Did the IRS Change the 1099-MISC?
Initially, the IRS tried to change the filing deadline for Box 7 on the 1099-MISC form. The problem, however, is that they ended up with two deadlines for the same form. As you can imagine, that caused considerable confusion.
To address the issue, they split out the information formerly reported in Box 7 of the 1099-MISC into the new 1099-NEC. This enabled them to assign different deadlines for the information because each deadline is now assigned to a unique form.
What Are the New Deadlines?
The new filing deadlines for the forms are January 31 for the 1099-NEC and March 31 for the 1099-MISC.
Will the Changes Affect Your Organization?
You’ll need to review the IRS publications linked above to determine how to report income from any non-employees compensated by your organization. For example, if you have independent contractors providing over $600 in services to your organization, you may need to file 1099-NEC for each contractor according to the earlier deadline.
Those who may receive royalties on book sales, however, would continue to receive the 1099-MISC.
Other changes to the 1099-MISC may be confusing. Boxes have moved and changed, so be especially careful when completing the form to avoid common mistakes.
Abila MIP Software Takes the Confusion Out of 1099 Reporting
- Update your version of Abila to the latest edition.
- Change vendor defaults to the new box.
- Make sure to use the new box in transaction entry.
- Move historical information from MISC-07 to the NEC via 1099 Adjustments.
If you aren’t running Abila MIP but are interested in true fund accounting for nonprofits, give Welter Consulting a call. We’ve helped many nonprofits transition their accounting and finance software to packages such as Abila, explicitly created for the nonprofit world.
Accounting for nonprofits includes fund accounting and unique setups to trace income and expenses to grants and other specific budget lines. Only with software created specifically for the nonprofit world can you do this easily and quickly.