Who is Impacted by the new draft General Instructions?
Any payors and withholding agents filing information returns for the 2020 calendar year using a 2020 Form 1096, 1097, 1098, 1099, 3921, 3922, 5498, and W-2G will be interested in the new DRAFT 2020 General Instructions for Certain Information Returns that the Internal Revenue Service (IRS) published on September 30, 2019.
The DRAFT 2020 General Instructions confirm our understanding of all the recent publications and new forms released from the IRS related to Forms 1099. Here are a few highlights that we expected:
New Form 1099-NEC. This new form for nonemployee compensation (NEC) is a result of the PATH Act, which moved the due date for filing Forms 1099 that report NEC to January 31 (previously, the due date was February 28 for paper filing and March 31 for electronic filing). Treasury Regulations removed the 30-day extension of time to file forms that include NEC. The new Form 1099-NEC will eliminate the disconnection filers noted when reporting NEC versus other types of miscellaneous income on Form 1099-MISC. For the 2020 calendar year, filers will report NEC on Form 1099-NEC and file by February 1, 2021 with the IRS. Please see our article on Form 1099-NEC for additional details.
Reduced Electronic Filing Threshold. Some may recall that the Taxpayer First Act of 2018 reduced the 250-form threshold to 100 for calendar year 2020 and then to 10 for 2021 calendar year reporting. Thresholds for partnerships fell to 200 for calendar year 2018 and then will fall to 150 for calendar year 2019. It is important to keep in mind this threshold and that it is an aggregate of all forms filed. Please see our prior article for additional details.
- In 2020, a filer that has 75 Forms 1099-MISC and 75 Forms W-2 to submit will combine the number of forms (150) and submit the forms electronically.
Be sure to calculate the number of forms and be ready to move toward electronic filing!
What about Continuous Use Forms?
Continuous Use Forms. In the more recent information returns, the IRS has started to include a concept of continuous use forms. This means that the forms will be updated as required and not on an annual basis. For instance, the IRS converted the following forms and their accompanying instructions from annual update forms (2018 Form 1099-Q, 2019 Form 1099-Q, etc.) to continuous use forms: Form 1097-BTC, Form 1098-C, Form 1098-F, Form 1098-MA, Form 1098-Q, Form 1099CAP, Form 1099-LS, Form 1099-LTC, Form 1099-OID, Form 1099-Q, Form 1099-SA, Form 1099-SB. What does this mean for filers? The difference here will be that filers have to enter the taxable year on the information return.
President’s Day 2021. Because President’s Day falls on February 15, 2021, the due date for furnishing statements to recipients on Forms 1099-B, 1099-S, and 1099-MISC (if amounts are reported in box 8, substitute payments in lieu of dividends or interest, or 10 gross proceeds paid to an attorney) is February 16, 2021. This also applies to statements furnished as part of a consolidated reporting statement.
How to Implement?
Organizations required to file any of the information returns mentioned in this article should consider the following:
- Explore tax reporting packages with compliant electronic submission capability. The threshold for filing electronically is shrinking. Eventually nearly all filers will be submitting these forms electronically.
- Use the updated IRS tax calendar and consider syncing the deadlines with your own calendar application for consistency. This is especially helpful when a filing deadline falls on a weekend or a holiday.
- Confirm your systems and reporting applications are update to date!
- Confirm tax reporting vendors are aware of forthcoming updates to 2020 Forms and withholding rates.
- Update process and procedure manuals to incorporate any changes required. Remember to add a new procedure to check the continuous use forms for any updates on a regular basis.
- Update training materials and presentations to staff.
- Update any relevant controls, approvals, or sign off procedures for making payments if yearend reporting is referenced.
- Update processes and procedures for reporting where you do find yourself to making payments that will be reported on new forms.