This week, the IRS released draft instructions for 2021 reporting of tax information on Forms 1099-MISC and 1099-NEC. One of the most notable changes included in the “What’s New” section of the instructions is the indication that the IRS has added the Payer Made Direct Sales of $5K or more checkbox to the Form 1099-NEC. The checkbox also remains on Form 1099-MISC.
Earlier this year, the IRS released a draft of Form 1099-NEC for 2021 reporting and it did NOT include the direct sales checkbox. If the instructions are finalized as proposed in this draft, we would expect the IRS to release an updated version of Form 1099-NEC for 2021 reporting. And, if released in the final version, this change would eliminate the need for Direct Seller payers to issue both Form 1099-MISC and 1099-NEC to the same recipient for most payments.
We’ve been blogging about the Form 1099-NEC all year long as the developments coming out of the IRS continue to impact all industries for the 2020 reporting season. Recently, we wrote about the impact to Direct Sellers and multilevel marketers as a result of the release of Revenue Procedure 2020-35 where the IRS disallowed any combination of Forms 1099-MISC/NEC from being created. This would have alleviated some of the costs of issuing two forms to the same recipient because Direct Sellers and other payers could leverage a single envelope and consolidated form minimizing the risk of duplicate printing and postage costs.
So this proposed 2021 version seems to all but eliminate the duplicate issuance of forms for the Direct Seller and multilevel marketer industry.
While these draft instructions promise a huge relief to Direct Sellers for 2021, this news does not change the landscape of the 2020 reporting season. Direct Sellers and other payers still need to be prepared for the possibility of issuing two forms to the same recipient. And, since the IRS also excluded Form 1099-NEC from the Combined Federal and State Filing Program (CF/SF) for the 2020 reporting season, Direct Sellers and other payers still need to focus on how to comply with the explosion of direct state tax filing requirements over the last month—as well as the changes that are forthcoming from states that have yet to release 2020 guidance.
Watch our on-demand webinar, Sovos is Ready for Direct State Reporting on Form 1099-NEC…Are you?, and learn an overview of the new Form 1099-NEC, regulatory updates on direct to state reporting, and how Sovos can help your organization with direct to state reporting this tax season.