Updated Publication 1220 Pushes States Towards Direct State Reporting for Form 1099-NEC

September 18, 2020

Wendy Walker

Author

Sovos

This blog was last updated on September 18, 2020

The IRS has released the 2020 version of Publication 1220. One of the most notable changes is that Form 1099-NEC (Nonemployee Compensation)—which was previously reported on Form 1099-MISC utilizing Box 7—will not be a Combined Federal/State Filing (CFS) form. This means that Form 1099-NEC cannot be filed with the states through the CFS Program. The IRS originally created the CFS Program to simplify filing for payers by allowing the IRS to automatically forward information filed in their federal information returns to participating states. This eliminated the need to file information returns directly with states in most cases. Not only did the CFS program make it easier for organizations to comply with state requirements, but states also took advantage of this program as they have historically relied on receiving nonemployee compensation payment information through the CFS program.

Not including the 1099-NEC in the CFS program was a surprising development and further complicates the implementation of the new form. Given it’s the first year for filing, payers are already dealing with making changes to core operating systems and preparing for duplicate reporting to some recipients who will now need to receive both a Form 1099-NEC and 1099-MISC for the 2020 year. Now, they also face the possibility that they will need to create and file Form 1099-NEC information directly with the states. With less than five months till this form is due to the IRS, it opens the door for states to implement different filing methods, thresholds, deadlines and form types to receive nonemployee compensation payment information. All of this will make the implementation of Form 1099-NEC and it’s evolving direct state reporting requirements exponentially more complicated for organizations still trying to manage the process manually or with antiquated technology.

For an in-depth look at the requirements for Form 1099-NEC, how it will impact your business, and best practices for reporting this new form, watch our latest webinar.

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Wendy Walker

Wendy Walker is the Vice President of Regulatory Affairs at Sovos. She has more than 15 years of tax operations management and tax compliance experience with emphasis in large financial institutions, having held positions with CTI Technologies (a division of IHS Markit), Zions Bancorporation and JP Morgan Chase. Wendy has served as a member of several prominent industry advisory boards. She graduated with a BS in Process Engineering from Franklin University and earned her MBA from Ohio Dominican University, in Columbus, Ohio.