MISC vs. NEC
If your company has typically filed a 1099-MISC each year, you likely have already heard of the returning 1099-NEC, but I will give a quick recap. Since 1983, Non-employee Compensation of $600 or more has been reported in Box 7 on the 1099-MISC form. In an attempt to assist in protecting the American taxpayers from increasing tax fraud, the PATH act of 2015 (among other things) accelerated the filing deadline of the Federal 1099-MISC return, including Box 7 income, to January 31st. Beginning in 2017, a 1099-MISC return without Box 7 information would be due to the IRS on the last day of March for electronic filers (or the end of February for paper filers).
That brings us to year-end filings for the tax year 2020 (in January 2021). The IRS decided to reinstate Form 1099-NEC for the reporting of Non-Employee Compensation and would not be reporting that information in box 7 of the 1099-MISC. As ERP solutions rapidly adapted to this change, January was fast approaching, and Greenshades was receiving calls from clients expressing concern that they may not be able to make the necessary updates and upgrades to their systems in time for the January 2021 filing deadlines.
To assist, for Tax Year 2020, Greenshades created two workflows for our GP clients. These workflows allowed GP clients to file timely by providing them more time to make their needed updates after January for future year-end data transfer.
- Option 1: Clients who could make the necessary updates to their system to split the NEC and MISC data operated as normal and had the appropriate information in the appropriate places to move forward with their submissions and form distribution.
- Option 2: Clients who were unable to make the necessary updates to split the NEC and MISC data in their ERP system were still able to use Greenshades to extract their data. With minimal editing and review of the Non-Employee Compensation and its associated taxes, they were able to get the appropriate data into the correct locations and file on time.
Now that January is coming around again, everyone is asking, “What do I need to know for Tax Year 2021 filings?”
Great question! If you completed the GP year-end updates needed from last year, you should be all set for this year’s workflow. However, for those who did not, your steps this year will be a little different.
- Option 1: The first and best choice is always to apply updates. Before doing any year-end processing, we strongly encourage applying any necessary updates to your ERP, Greenshades products, or any other software you may use to complete or generate your annual return information.
- Option 2: Depending on the number of 1099’s you need to create, using the Excel templates provided in the Greenshades tax products may be the route for you. If you have the data, it is fairly simple to transfer the data into the necessary Excel template and import that data to Year-End Forms or other appropriate Greenshades tax product of choice. This Excel template may be shared with you via email by contacting our Support team.
- Option 3: An alternative method of extracting the necessary data is to walk through the process of generating your 1099-MISC in your appropriate tax product, which will automatically include the 1099-NEC data as well (which is stored as MISC Box 7 data in a non-updated GP environment). When provided the option to edit your data, make the selection to edit. You can remove the 1099-MISC form data and use the Excel template as a framework for the NEC workflow. Edit the necessary information and save it as a second copy to import for your NEC workflow.