Subject Matter Expert Greatland Corporation
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IRS Form 1099-NEC Reporting Requirements by State

You are likely aware that the IRS instituted a major reporting change for 2020 by separating out non-employment compensation onto its own reporting form, the 1099-NEC. But you may not know about individual state filing requirements related to this form.

Feb 12th 2021
Subject Matter Expert Greatland Corporation
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1099 NEC
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It is important to note that IRS Form 1099-NEC will not be included in the IRS 1099 Combined Federal/State Filing Program (CF/SF) going forward, though you may be used to the information you report being automatically forwarded to participating states. It is ultimately the reporting firm’s responsibility to file separately with each state to which it is required to submit a report.

For around 40 years, filers have been using Box 7 of the IRS Form 1099-MISC to report payments of more than $600 made to outside attorneys, freelance consultants and other independent contractors, but that will change beginning with your reports from tax year 2020. What you may be less clear about is how the new form affects filing with individual states.

As you prepare to file, here are some points to consider:

  • Does your state require a 1099-NEC filing?
  • Have you read the state-specific instructions?
  • What is the state filing deadline? What are the late fees?
  • What filing format do you plan to use and does your state accept it?
  • What are the guidelines for paying out of state contractors?

An added wrinkle: Filers of the new 1099-NEC may also still need to file the 1099-MISC, as that form will still be used to report royalties, rent, healthcare, prizes, and other payments. The 1099-MISC form remains in the CF/SF and will continue to forward information to participating states.

Federal Deadlines

The new form is intended to alleviate problems with the old 1099-MISC, which were caused by different deadlines that resulted in unintended financial penalties for filers. Going forward, both paper and electronic reports for the 1099-NEC will be due to the IRS on January 31 (February 1 in 2021, because the official date falls on a Sunday).

A copy is due to the payee on the same day to give that person ample time to file personal income taxes. For the 1099-MISC, the paper deadline is February 28 (March 1 in 2021), or March 31 for those filing electronically, with a copy due to the payee on January 31 (February 1 in 2021).

State Deadlines

Here’s where it gets tricky. Most states that require a 1099-NEC form follow the federal deadline of February 1 for tax year 2020. But several states have different deadlines:

  • Iowa and New Jersey impose a deadline of February 15
  • Hawaii, Mississippi and Missouri list a deadline of March 1
  • Illinois and New York do not require a 1099-NEC to be filed at all

States that do not have a state income tax also do not require you to file the form. These include Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.

Even for states that require a 1099-NEC, the filing may be necessary only if the state specifically requests the form or if backup withholding is reported. For example, although Louisiana and New Mexico require Form 1099-MISC to be filed, the filing requirements are not related to nonemployee compensation; therefore, these two states do not require Form 1099-NEC. 

The bottom line is that the states do not have uniform requirements – again, it is incumbent upon the filer to be aware of and abide by the individual rules. To help with that, many states have released specific guidelines for filing the 1099-NEC.

As of December 2020, those states are: Alabama, Arkansas, California, Connecticut, Delaware, Washington, D.C., Iowa, Kansas, Kentucky, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Jersey, North Carolina, Oklahoma, Oregon, Pennsylvania, South Carolina, Vermont, Virginia, West Virginia, and Wisconsin. That list is updated continually, so it’s a good idea to check individual state websites for the most up to date information.

Penalties

The Federal Government assesses penalties for a variety of reasons, including late filing, failure to file, failure to file correct forms, failure to file electronically, and failure to provide recipient copies. The current schedule is: $50 if you file within 30 days, $110 if you file more than 30 days late, but by August 1, and $280 if you file after August 1.

There is also a $560 minimum penalty per statement if a form is intentionally disregarded or knowingly filled out incorrectly. State penalties vary by state – filers will need to research specific dollar amounts by checking individual state websites.

Summing Up

The new 1099-NEC may require a steep learning curve in the next few months but will soon become familiar. For now, perhaps the most important logistical step to remember is that state filing is no longer automatic and you will need to take some extra steps. As a trusted reporting consultant, CPA or EA, you will be your clients’ best resource as you navigate this new territory.

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