Prior to 2020, if in the course of conducting business, your firm paid freelancers, contractors or other non-employees $600 or more during the year, a 1099-MISC would be issued and sent to the payee. However, in 2020 the IRS released form 1099-NEC, a new form which will change the way 1099-MISC reporting has been handled for years. The 1099-NEC was added specifically for reporting non-employee compensation. This would include payments to individuals who are not employees, as well as payments for services to partnerships, estates or, in some cases, corporations (such as attorneys and law firms). Yes, the 1099-MISC is still being used, however, it has been redesigned, so it will be especially important to pay close attention to how payments are being reported in early 2021.
Below is a chart indicating what has changed between the 2019 form and the 2020 forms.
Any payments in 2020 to non-employees, including attorneys and/or law firms for services rendered should now be entered in Box 1 of form 1099-NEC. Gross proceeds, such as settlements paid to attorneys/law firms, should now be recorded in Box 10 of 1099-MISC.
New Filing Deadlines
It will be more important than ever to review all Vendor Accounting Settings in Centerbase to ensure that 1099 vendor payments are reported in the correct box and on the correct form for 2020. Form 1099-MISC must be filed by March 1, 2021, if filed on paper, or by March 31, 2021, if filed electronically. But vendor record review should begin as soon as possible because the accelerated due date for filing form 1099-NEC with the IRS is on or before January 31 (February 1 in 2021), whether using paper or electronic filing procedures.
Reviewing Vendor Record Settings
Because of all these changes, vendor tax information will need to be updated. Fortunately, Centerbase has made this is a simple process. Vendor 1099 settings are located in the accounting settings of each vendor:
From there the settings for each vendor can easily be viewed and edited, if necessary.
Note that when conversion to Centerbase takes place within the reporting year, the vendor payment balances from the previous system should be entered as the YTD Amount, if that did not already occur during the conversion. After the initial year, the YTD values should be deleted.
Choose the type of 1099 form that will be used to report the payments to the vendor.
The correct Vendor Box Value to use will need to be chosen for 1099-MISC, but since the 1099-NEC only has the one box, it will automatically be populated as Box 1.
When all changes have been made, be sure to save your Accounting Settings.
A best practice is to require all vendors to submit a current W-9 prior to issuing any payments to them to ensure each vendor record is set up properly in Centerbase. Further, an updated W-9 should be requested at the beginning of each year, prior to issuing any additional payments, to confirm that the information contained in the vendor record is accurate from year to year. Current W-9’s should be attached as a document to each vendor record.
Credit and Debit Card Payments
Remember that any credit or debit card payments to vendors should be excluded in what is reported to the IRS as each credit card company (payment settlement entity) reports payments via credit card to vendors on form 1099-K. If credit card payments were to be included in the amounts reported on 1099-MISC or 1099-NEC, it would result in the overstating of the vendor’s income to the IRS. This may ultimately result in the necessity of filing corrected 1099’s, if requested by the vendor. Fortunately, Centerbase provides the ability to filter the 1099 Vendor Report by the account used for payment so credit card payments can be excluded.
1099 Vendor Report
Once all vendor payments for the year have been entered, the 1099 Vendor Reports should be used to prepare for issuing 1099’s. These reports can be filtered by date, vendor, and the account used for payments.
Note that only payees who have been added as vendors to Centerbase will populate in the 1099 Vendor Reports. For instance, if a vendor’s name is entered on a check without formally adding it as a vendor, the amount paid on that check will not be added to the 1099 Vendor Report (or included in any vendor reports), because the vendor record was not created and therefore, Centerbase has nowhere to gather and pull that payee's information. A best practice is to add any individual or entity as a vendor (even if you do not believe they will ever be paid by the firm again) before issuing a payment in order to keep an accurate record of all vendors paid throughout the year. And, of course, be sure to obtain their W-9 for your records.
The new 1099 Vendor Reports will need to be downloaded from https://support.centerbase.com/hc/en-us/articles/360012890652-Download-All-Reports-Here- and imported to Centerbase. Instructions on importing reports can be found at: https://centerbase.zendesk.com/knowledge/articles/360010326371/en-us?brand_id=360000545791.
Once imported, check the filters:
1. The date range will default to "last year", but can be changed, as needed.
2. Choose the payment accounts to be included in the reporting. Typically, these will only be bank accounts. Centerbase lists all accounts from which payments were made to 1099 vendors during the date range chosen. If an account is not listed, no payment were made to 1099 vendors during that timeframe.
3. Filtering by vendor is also available.
Now "Apply Filter". This report can then be downloaded to an Excel or .CSV file and can easily be used with most 1099 form prep software or can be forwarded to an accountant for further processing.
Reviewing 1099 Vendor Report Balances
To verify 1099 vendor balances, a report can be created which will show the payment details of what makes up each of the vendors’ balances. Two separate queries will need to be run and the results downloaded to Excel:
- Run a Bill Payments query with the Date Received as last year and where the Type does not include "credit card".
This Bill Payment query excludes any vendor bills that were paid by credit card.
- Run a Checks query which includes all checks dated in the previous year and excludes Bill Payments.
The Checks query will exclude any payments that were made for vendor bills, since all vendor bill payments are included in the Bill Payment query.
Only four columns from the two spreadsheets will be used for the details report:
- Date Received / Check Date
- Reference Number / Check Number
Combine the information from each query spreadsheet into a new spreadsheet (stacked one on top of the other so there are only four columns, total). A pivot table can now be created to group vendor names with the sum of their payment together. For more detailed information about how to create a simple pivot table, please see the video below:
Be aware that non-1099 vendors will be included on the pivot table. Review these vendors to verify they, indeed, should be excluded from the 1099 Vendor Reports. Compare the totals from the pivot table with the 1099 Vendor Reports. To review payment details, double click on any vendor total in the pivot table and a new worksheet will open with the individual payments to that vendor listed. When satisfied that all 1) 1099 vendors have been included, 2) the balances are correct, 3) the right report and correct boxes are being populated, 4) all tax i.d.'s have been included, and 5) the addresses are correct, run a new 1099 Vendor Report and download the Excel or .CSV file for 1099 preparation.
Time is of the Essence!
Preparing for filing 1099’s is going to take some additional effort in early 2021. With the filing deadline for form 1099-NEC only 31 days into the new year, getting started on vendor review as soon as possible will be essential. Armed with the knowledge of the changes to 1099-MISC and what is to be reported on new form 1099-NEC, a careful vendor record review should result in accurate 1099 reporting for 2020.
For more detailed information regarding 1099-MISC and 1099-NEC reporting for 2020, see https://www.irs.gov/pub/irs-pdf/i1099msc.pdf.
Please reach out to firstname.lastname@example.org if you have any questions or want further information regarding 1099 processing.