As of January 2021, when businesses are preparing 1099s for the 2020 tax year, they will now use new federal Form 1099-NEC to report nonemployee compensation, which replaces Form 1099-MISC.
You will continue to use the 1099-MISC for reporting other types of payments such as rents, royalties, medical and health care payments, and nonqualified deferred compensation. And, new for this year, you will also report “Fish purchased for resale” and §409A deferrals on the 1099-MISC.
Many people who were unaware of the change purchased bulk 1099-MISC forms in 2020. Unfortunately, they cannot be used to report nonemployee compensation. Hopefully, the company will let you return or exchange them for the correct form.
Now, here is the state problem:
California just announced they will require businesses to send a copy of the federal Form 1099-NEC to California, since the IRS is no longer sending copies of the Form 1099s to the states.
If you are filing fewer than 250 Forms 1099-NEC, you can mail them to the FTB. If you are filing 250 or more, the FTB requires 1099-NEC return filers to send a paper or electronic copy directly to FTB, subject to the electronic filing requirement threshold. The due date for filing with FTB is February 28, 2021, for paper-filed returns and March 31, 2021, for electronic copies. The filing process for the 1099-NEC will be the same as for any other form in the 1099 series that is filed directly with the FTB.
Taxpayers who fail to timely file the required state information return or who fail to include all the required elements in the information return are subject to the penalties imposed under IRC §§6721 and 6724, as modified by California. The California penalty is equal to $100 per return, $30 if filed within 30 days of the due date, and $60 if corrected after 30 days but before August 1.
Recap. A paper or electronic copy of the form 1099-NEC must be filed directly with FTB, even if you file it with the IRS. If you are submitting less than 250 forms, you are not required to file electronically, but you can through SWIFT (Secure Web Internet File Transfer). If you are paper filing, attach the 1099-NEC forms to an IRS Form 1096 and mail them to the following address:
Franchise Tax Board
PO Box 942840
Sacramento, CA 94240-6090
This information is an excerpt from Spidell’s California Minute podcast and was reproduced with permission from Spidell Publishing, Inc.
For questions or more information about this article, please contact our tax professionals at taxalerts@windes.com or toll free at 844.4WINDES (844.494.6337).