1099-NEC Joins Combined Federal State Filing Program TY2021
During the 2020 tax year, the Internal Revenue Service (IRS) added Form 1099-NEC: Nonemployee Compensation. The form is now in its second year since its re-introduction, and the government agency is including it in the Combined Federal State Filing Program (CF/SF).
Recently, the IRS released Publication 1220 confirming that it has included the new 1099-NEC form within the Combined Federal State Filing Program for tax year 2021. Keep in mind that not every state is participating. If you have payees that reside or have performed work within a non-participating state, you may still need to complete a direct-to-state filing.
The IRS deadline for electronic filing will remain January 31, which is the same deadline as mailing recipient copies. By adding the 1099-NEC form to the Combined Federal State Filing Program, the administrative work involved in direct-to-state filing will be greatly decreased for participating states.
The CF/SF program permits organizations to file their IRS 1099 forms just once on the federal level. Organizations are appreciating the CF/SF program because along with streamlining the process, it also sends original and amended information returns that are filed electronically through the FIRE system to states that are participating in the program.
While the NEC form was new for the 2020 year, it is a reinstatement of a form that was last used during the early 1980s.
The IRS is bringing back the 1099-NEC form to help taxpayers avoid fraud. Several years ago, the government established the 2015 PATH Act. Part of this regulation required a hastened filing deadline of the 1099-MISC form. This is where the agency tracked independent contractor compensation. The problem was that many employers experienced an increase of tax fraud with the form in place due to the rush to fill out and complete the form without vetting it properly.
During the pandemic, state filing became chaotic due to government assistance and many filers suddenly facing employment insecurities. Because of this, states were not ready to deal with a new IRS form. Additionally, the IRS and state agencies failed to streamline the information transfer last January.
If you have any questions about NEC 2021 this upcoming tax year, then give us a call. We offer pricing proposals for outsourcing your tax filing, eliminating the stress of this annual business requirement.