The Top 5 Things Tax Professionals Need to Know About Form 1099-NEC

Wendy Walker
April 13, 2020

Tax professionals around the country are preparing for the new Form 1099-NEC. A lot of confusion surrounds this form. Below are the top 5 things you should be aware of.

1. Form 1099-MISC changed too: Because the IRS also adjusted the layout of Form 1099-MISC, payors will need to analyze how the source transaction systems are configured for Forms 1099-NEC and 1099-MISC. For example, gross proceeds paid to an attorney used to be reported in Box 14 of Form 1099-MISC. But, in 2020 those amounts need to be reported in Box 10 of the form.

2. Reporting a 1099-NEC and a 1099-MISC for the same recipient: For Sovos, 80+ percent of clients that reported Box 7 of the Form 1099-MISC last year also reported a value in some other box on the form for the same recipient. This means that in 2020, the client needs to issue two separate forms for that single recipient. Configuring a source transaction system to produce two different forms for a single recipient is complex and the related operational issues are difficult to manage.  Some more common examples of where two forms may need to be issued are detailed below.

  • Attorney payments: When an attorney performs services related to a specific litigation matter, the payments are reportable on the 1099-MISC in Box 10 Gross Proceeds Paid to An Attorney. When an attorney performs services related to general business matters, the payments are reported on the new 1099-NEC. General legal services include things like reviewing contracts, providing advice on employment hiring issues or reviewing real estate contracts. In the event the organization is using the same law firm or attorney to provide both types of services, separate 1099 forms need to be reported for the different payments.
  • Direct sales: The new version of the 1099-MISC form contains a checkbox in Box 7. However, many payors that check this box will also report the related nonemployee compensation payments to the recipient. By keeping this checkbox on the 1099-MISC form and separating the NEC, many payors will now have an obligation to issue two forms for the same recipient.

3. Backup withholding: Withholding tax processes need to be updated so that the technology can differentiate a 1099-NEC transaction from a 1099-MISC transaction.  Also, the Form 945 annual return of withheld federal income tax process will need to be adjusted to ensure that reconciliation of backup withholding includes a comparison to the new Form 1099-NEC. Payors will need to consider whether another general ledger liability account should be established to track the NEC backup withholding and what kinds of operational reports are needed for proper reconciliation, remittance and reporting.

4. Double the risk of B-notices: The IRS assesses failures based on each 1099 issued that contains erroneous information. In the event that a recipient provides incorrect name/TIN information and the company issues both forms, the company will receive a B-notice and proposed penalty for each of the 1099 forms filed with the incorrect information. It is more important now than ever to ensure that name/TIN combinations are correct to minimize the risk that the new Form 1099-NEC introduces to payors.

5. Major state reporting updates: The combined federal/state filing (CF/SF) will not satisfy most states filing requirement for the 1099-NEC form as the due date is January 31st in most states. Companies will have to create a process to produce state transmittals of the 1099-NEC information separate of the 1099-MISC information that was being produced previously. Today, most states follow the 1099-MISC format for submitting NEC income. But, they might modify those systems for the new 1099-NEC form. It is too early to tell.

Watch the free 1099-NEC webinar and learn: 

  • how to read and report Form 1099-NEC
  • how the 1099-NEC impacts 1099-MISC reporting, backup withholding and state reporting
  • how to update your 1099-MISC and 1099-NEC reporting processes and prevent errors

Download the free recording today.

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.


Wendy Walker

Wendy Walker is the principal of Tax Information Reporting solutions at Sovos. She has more than 15 years of tax operations management and tax compliance experience with emphasis in large financial institutions, having held positions with CTI Technologies (a division of IHS Markit), Zions Bancorporation and JP Morgan Chase. Wendy has served as a member of several prominent industry advisory boards. She graduated with a BS in Process Engineering from Franklin University and earned her MBA from Ohio Dominican University, in Columbus, Ohio.
Share This Post

LATAM VAT & Fiscal Reporting
May 20, 2020
Sovos Acquires Taxweb, Extends Tax Determination Capabilities in World’s Most Challenging Compliance Landscape

Earlier this month Sovos announced its second acquisition of 2020, completing our solution for Brazil with an unparalleled offering that solves tax compliance in the place where it is most challenging to do so.  Too many companies doing business in Brazil have been burdened by managing multiple point solutions for continuous transaction controls (CTCs), tax […]

August 11, 2020
10 Steps to Expand Your Winery

Looking to enter a new market or bring new wines to the marketplace? Growing any business can be complicated, and the beverage alcohol industry is no exception. Not knowing how or where to begin can be the biggest hurdle. From market research and branding to strategic considerations and compliance, this 10-step guide will get you […]

August 10, 2020
Ask Alex: Your Bev Alc Compliance Questions Answered (August 2020)

Do you have questions about the rules, regulations, and compliance requirements of the beverage alcohol industry? This series, Ask Alex, is a perfect opportunity to get those pressing questions answered straight from one of the industry’s regulation and market experts, Alex Koral, Senior Regulation Counsel, Sovos ShipCompliant.  To take advantage of this opportunity and get […]

Tax Compliance
August 7, 2020
GAO Urges IRS to Overhaul 1099 Reporting for the Gig

A couple of weeks ago, the Government Accountability Office (GAO) released a report to the Senate Finance Committee describing the issues the IRS faces in enforcing income tax compliance for gig economy workers. The report highlighted long-standing issues the government has been grappling with in receiving tax information necessary to enforce compliance along with specific […]

EMEA VAT & Fiscal Reporting
August 4, 2020
New VAT Rules for Online Marketplaces and Imports of Goods into the UK

The United Kingdom’s HMRC has issued new guidance on the VAT treatment of cross-border sales of goods and online marketplaces beginning 1 January 2021, following the end of the transition period. Cross-Border Sales under £135 New rules will apply when a business sells goods for £135 or less to a UK customer and the goods […]

EMEA VAT & Fiscal Reporting
August 3, 2020
New EU Tax Package: VAT Priorities

On 15 July 2020, the European Commission (EC) adopted a new Tax Package, intended to increase tax compliance while reducing administrative burden on businesses. The Tax Package contains a number of proposals related to VAT, of which three in particular stand out: A single EU VAT registration for taxpayers; Modernized VAT reporting obligations; and Facilitated […]