Beginning with the 2020 tax year, non-employee compensation is to be reported in Box 1 of Form 1099-NEC. This change means that independent contractor payments made through Wave will no longer be reported on Form 1099-MISC.
Form 1099-NEC requirements
You must send Form 1099-NEC, Non-employee Compensation (NEC), to any contractors you have paid more than $600 to during 2020, as well as file the form with the Internal Revenue Service (IRS).
If the following four conditions are met, you must generally report a payment as NEC:
- You made the payment to someone who is not your employee.
- You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations).
- You made the payment to an individual, partnership, estate, or, in some cases, a corporation.
- You made payments to the payee of at least $600 during the year.
Form 1099-NEC is due to your contractors and the IRS by January 31st of the following tax year. If this date falls on a weekend or holiday, the filing deadline moves to the following business day.
For the 2020 tax year, Form 1099-NEC will be due to the IRS February 1st, 2021, as January 31, 2021 falls on a Sunday.
The penalty for missing this deadline varies, but can range from $30 to $100 per form, to a maximum of $500,000 per year. If you neglect to send any 1099 forms, fees can go as high as $250 per form.
- Form 1099-NEC can be filed electronically through the IRS' FIRE (Filing Information Returns Electronically).
- If you are required to file 250 or more information returns during the year, you must file electronically.
- If filing on paper, a Form 1096 (cover page) must be sent as well.
- Form 1099-K is still used for payment cards and third party network transactions - this is provided by the third party network directly to the contractor.
- Issuers have the option to truncate the recipients SSN/EIN. This can look either like:
- XXX-XX-1234 or;
- replacing X with *
How do I get 1099-NEC forms from Wave?
Your 2020 1099-NEC forms won't be available in Wave until January of 2021.
If you use Wave Payroll, you can generate a 1099-NEC form for every contractor you’ve marked as a 1099 Contractor and paid more than $600 in the 2020 calendar year. This applies to all contractors you’ve paid more than $600 to using direct deposit, cash, check, or bank transfer.
In order for 1099 contractor bills paid by Direct Deposit to appear on Form 1099-NEC, you must have Account Mapping set up in Wave. To set that up, click Settings at the bottom of the left-hand navigation menu and select Account Mapping. In the Funding Account field, select the bank account that you use to pay contractors with, by direct deposit. Click Save. Note: if you can't find the correct account, you can set that up from the Chart of Accounts.
How to Generate a 1099-NEC in Wave in January of 2021
- Click Payroll
- Click Tax Forms
- Choose the year 2020 from the drop down menu
- Click Generate next to the 1099 you would like to file
- Review and confirm the details of yourself, as the Payer and of your 1099 contractor, as the Recipient, including their total compensation for the tax year
- Click Confirm & Continue
- On the following page, proceed to Step 3 and click E-file your tax forms now. When selected, Wave will handle e-filing on your behalf, for this 1099-NEC form.
- Repeat these steps for remaining 1099 contractors.
After 1099-NEC forms are generated, download Copy B and give it to your contractor. Copy C is available for your records.
Your 2020 1099-NEC forms won't be available to generate or file via Wave until January of 2021.
What about the Form 1096?
The IRS Form 1096 is an "Annual Summary and Transmittal of U.S. Information Returns". This form is required when submitting paper forms, including the 1099-NEC, to the IRS. Form 1096 is not sent to recipients.
You do not need to use Form 1096 if you are filing 1099-NEC forms electronically. This means if Wave is submitting 1099-NEC forms on your behalf, a Form 1096 is not required.
How can I ensure my 1099-NEC forms generate with correct amounts?
You can get ahead of tax time by ensuring your bills are marked correctly to have them appear on your Forms 1099-NEC when they are made available in January of 2021.
- Step 1: Make sure all contractor bills have correct dates
- Go to Purchases > Bills. Select any bill to review the Date.
- For example, if you expect the bill amount to be included on your 2020 1099-NEC form, then the bill date should be within 2020. If it's not, the bill will not be reflected on the 2020 1099-NEC form.
- Step 2: Next, make sure the bill is Paid.
- If the bill is outstanding, check out this guide on adding and paying contractors for how to Record a Manual Payment. Make sure the bill payment is also dated correctly.
- Step 3: Check the bill Payment Method
- Only Bank Payment, Cash, Check or Direct Deposit payment methods will be reflected on the 1099-NEC Form.
- This means, payments made to contractors by Credit Card, Payment Card or other companies that process payments (e.g. Google Wallet, PayPal, Venmo, etc.) are not reported on the 1099-NEC form. For these contractors, Form 1099-K will be provided to them by the payment processing company.