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1099-MISC NEC and Non-NEC Income Separation for 2019

Get It Right or Face Fines

As most readers of this newsletter will know, the deadline for reporting 1099-MISC forms that report non-employee compensation (NEC) in box 7 is now January 31 (for both paper and electronic filing). It is no longer February 28th for paper or March 31st for electronic filing, as in the past.

This change applied to 2018 reporting of 2017 payments, and of course will apply in 2019 for 2018 payment reporting, and on into future years.

What you may not know is that if you are late sending in 1099s with NEC and you combine the none-NEC reporting with the NEC reporting (a mixed submission), the whole batch is considered late and subject to penalty.

That’s why for 2018, the IRS recommended that you separate your NEC filings from your non-NEC filings, and if submitting on paper, you complete separate 1096s for the separate batches.

In 2019, you will be required to separate late 1099-MISC NECs from other 1099-MISC filings. And if you have the less common situation of having paid two types of income to one entity, and you file after the January 31 deadline for NEC, you will have to file two 1099-MISCs with the IRS, separating the payment types.

The IRS advises that it will reject a mixed electronic submission with a single payer “A” record after January 31, 2019. But if the filter doesn’t catch it and the submission goes through, it will be subject to the Section 6721 penalty for late filing.

Likewise, a mixed submission of paper forms under one 1096 could result in your being assessed a penalty according to Section 6721 for failure to file by the January 31st deadline.

It is okay to send the payee a single 1099 including all payment types. You are not required to separate recipient statements, even though you report NEC and non-NEC separately to the IRS. Of course, the deadline for sending payee statements is January 31st, as it has been in the past.

The easiest way to avoid trouble is to get your 1099-MISCs done and filed with the IRS by the January 31st deadline. But sometimes that doesn’t happen. So remember: If you’re late, separate!

To help avoid being late, practice good vendor onboarding by getting vendor W-9s and W-8s up front, so you are not chasing them down at the end of the year. Ideally, get them electronically through a vendor self-service portal.

To learn more about vendor verification and compliance click here to request more information or call (678) 335-5735.

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