In 2020, 1099-NEC was resurrected to replace box seven on Form 1099-MISC. This means the 1099-NEC is now the form for reporting non-employee compensation for services amounting to $600 or more. As a result, this form has had a significant impact on all types of businesses and their 1099-MISC reporting processes.
With the initial release of form 1099-NEC for tax year 2020, the IRS chose to not include the form in the Combined Federal/State Filing (CF/SF) program which is intended to relieve the burden of filing 1099s directly with states, since the IRS forwards 1099s filed federally to participating state agencies. As a result, for tax year 2020, 36 states and the District of Columbia implemented their own direct reporting requirements for the 1099-NEC that were not satisfied by the combined federal/state filing.
With the release of Publication 1220 for tax year 2021, the IRS decided to add Form 1099 NEC to the (CF/SF) program. This resulted in a number of states accepting 1099-NEC through the CF/SF program for 2021, however, 26 states and the District of Columbia decided to stick with their own direct reporting requirements. This has created a very complex patchwork of state reporting requirements and methods for form 1099-NEC that are very easy to misunderstand.
- The key takeaway is how important it is for individuals and small business owners to understand that in addition to IRS 1099-NEC reporting obligations, your business may well have state reporting obligations for the 1099-NEC that you are not aware of. And, as we approach the 2022 reporting season, more state changes are likely to come. This means businesses will need to:
- Track individual state guidance for the 1099-NEC that will continue to change late in the season.
- Understand state-specific requirements around data, reporting thresholds, format, and timelines, and adapting reporting processes for each state.
eFileMyForms 1099-NEC reporting service can relieve this burden and help your organization meet your state reporting obligations. For more information, please visit our 1099-NEC Direct State Reporting Service page.