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How to report non-employee compensation and backup withholding

There is a new IRS Form 1099-NEC (Non-employee Compensation) for taxpayers to report non-employee compensation paid or received in the course of their trade or business. Starting in tax year 2020, taxpayers must complete this form to report any payment of $600 or more they make to an individual or business in the course of their trade or business. Note, though, there is no requirement to report personal payments (e.g., payments unrelated to a trade or a business); the requirement covers only payments made in the course of your trade or business.

Typically, payers must file Form 1099-NEC by January 31st (note that for 2020 tax returns, the due date is February 1, 2021). There is no automatic 30-day extension to file a Form 1099-NEC, but an extension may be available under certain hardship conditions.


Non-employee compensation may be subject to backup withholding (see below) if either: (a) a payee has not provided a taxpayer identification number (TIN) to the payer; or (b) the IRS notifies the payer that the TIN provided was incorrect.


A Taxpayer Identification Number (TIN) can be one of the following numbers:

  • Social Security;

  • Employer identification;

  • Individual taxpayer identification; or

  • Adoption taxpayer identification.

What is Backup Withholding (BWH)?

If you are a taxpayer receiving certain types of income payments, the IRS requires the person or business paying these payments to report them on an information return (e.g., Forms 1099 or W-2G). The person or business paying you does not generally withhold taxes from these types of payments because it is assumed that you will report and pay taxes on this income when you file your federal income tax return. But there are situations when the payer is required to withhold a certain percentage (currently 24%) of the income to ensure the IRS receives the tax due on this income. This is known as Backup Withholding.


For more information, see the following resources:

 
About the Author

Attorney Jordan D. Howlette is the President of MyTaxRights, LLC and the managing-member of JD Howlette Law, LLC, a civil litigation firm that represents individuals and businesses involved in tax disputes with the IRS, the United States Department of Justice (DOJ), and various state departments of revenue. A former trial attorney with the DOJ’s Tax Division, Jordan leverages his extensive background in tax litigation to educate others about their federal tax rights and responsibilities. Each tax season, Jordan also volunteers as a tax coach with the Center for the Advancement of Tax Equity, where he teaches others how to self-prepare and file their taxes through the non-profit's free tax clinics.


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