Tax Reporting for Nonemployee Withholding

What you need to know about reporting nonemployee compensation 

For over 100 years, the IRS has looked for ways to get third parties to report nonemployee compensation payments. But that has become increasingly complicated, especially with the rise of the independent contractor workforce. Additionally, there are disparate federal and state reporting obligations, the thresholds for reporting requirements have lowered and there are other tax reporting requirement changes yet to happen. 

Typically, when taxpayers are not W-2 workers, they receive their income from independent sources. This means that the taxpayer could receive a 1099-MISC, a 1099-NEC or a 1099-K (instead of the W-2 that full-time employees receive). Depending on what was paid and how it was paid will determine which of those forms the taxpayer receives.

How can a business stay compliant with all nonemployee withholding and reporting requirements? What determines the type(s) of form that individuals receive?  

Download the white paper

This white paper highlights key points in tax reporting for nonemployees withholding, specifically as it relates to the 1099 forms, including:

What are the differences between Forms 1099-NEC, 1099-K and 1099-MISC?

  • What does each one mean?
  • When would you need to report those forms? 

The rise of the gig economy 

  • How has this contributed to the tax gap?
  • Why this led to a lowered 1099-K reporting threshold – and what that means for your business.
  • Which states follow the federal reporting threshold? Which ones differ? 

Common reporting issues 

  • Gross amounts v. net amounts – see examples of how to meet all requirements.
  • Understanding attorney payments and exempt recipients. When must you issue a 1099? Which form is required? 

Backup withholding enforcement 

  • Reports from the Treasury Inspector General for Tax Administration led to recommendations that the IRS create a process to identify and enforce backup withholding.
  • The IRS has not previously strongly enforced backup withholding, but it is creating a significant tax gap.
  • How much money has not been reported? What does that mean for you? 

Tax and regulatory reporting compliance grows increasingly digital. Businesses of all sizes and across all industries are impacted. Disparate federal and state reporting obligations, lower thresholds for 1099 reporting and future tax reporting changes can all impact compliance requirements for companies. Once you understand the organizational costs associated with ever-changing tax reporting needs, it can help ensure proper management of delivering all necessary information to recipients, the IRS and states. Our white paper can help clarify the confusion and provide thorough explanation to what your business must do to maintain compliance.