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APA Asks States About Reporting Nonemployee Compensation

BY: Alice P. Jacobsohn, Esq. | 02/14/20

With the IRS implementing the new Form 1099-NEC, Nonemployee Compensation, APA’s Government Relations Task Force Subcommittee on State and Local Topics asked states about their plans for nonemployee compensation (NEC) reporting. APA sent letters to revenue and tax departments in 39 states and Washington, D.C.

A provision in the Protecting Americans from Tax Hikes (PATH) Act of 2015, changed the filing date for Forms 1099-MISC, Miscellaneous Income, reporting NEC to January 31, while retaining the filing due dates of February 28 (paper filing) and March 31 (electronic filing) to report amounts other than NEC. Because of the confusion with multiple filing dates for one form, the IRS moved the reporting of NEC from Form 1099-MISC to Form 1099-NEC beginning with payments made after December 31, 2019. Form 1099-NEC has a filing due date of January 31 for both paper and electronic filing. Beginning with the 2020 Form 1099-MISC (filed in 2021), there will only be two filing dates (February 28 for paper filing and March 31 for electronic filing).

With the IRS’s release of the final Forms 1099-NEC and 1099-MISC for 2020, the Form 1099-MISC no longer has an entry for NEC. Consequently, over the next few months, state tax authorities may need to revise regulations, forms, and instructions to adopt the new federal Form 1099-NEC for reporting NEC or states may choose to retain their Form 1099‑MISC equivalent for reporting NEC.

In addition, the IRS informed APA the Form 1099-NEC will not be part of the IRS’s Filing Information Returns Electronically (FIRE) Combined Federal/State Filing Program (CF/SF) in the foreseeable future. The CF/SF program reduces the payer’s burden for filing Form 1099-MISC and nine other information returns because the IRS shares data from approved filers with state tax departments. Therefore, APA asked states about electronic filing capabilities and whether a threshold will limit its use.

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Alice P. Jacobsohn, Esq., is Senior Manager of Government Relations for the APA.