The IRS didn’t include its new form (1099-NEC) for documenting non-employee income in the program last year. Businesses that use independent contractors to undertake tasks, such as Uber UBER -5 percent and Doordash, use the form. As a result, 36 of the joint tax reporting program’s 36 states hurried to enact their direct reporting requirements.
Sovos’ Comment to Program
Sovos learned that the IRS had introduced Form 1099 NEC to the Combined Federal State Filing (CF/SF) program with the issuance of Publication 1220 for the tax year 2021. Because the IRS distributes 1099 filed nationally to participating state agencies, this initiative alleviates the difficulty of filing 1099 directly with states. Thirty-six states and the District of Columbia still have direct reporting requirements for the 1099-NEC that are not met by the combined federal/state filing at this time.
According to Wendy Walker of Sovos, the IRS made a big mistake by failing to include it in the sharing program. The 36 states want to return to the IRS’s sharing program this year after going out and creating their standards last year. It implies that they will have to wait longer for that information, inexcusable.
Businesses Might Be Penalized
According to Forbes, the Sovos’ analysis and statistics, most of those 36 states still require corporations to report non-employee remuneration directly as of mid-January. However, Walker is afraid that businesses that refuse to adhere to the filing requirements may face penalties. For example, a poll of more than 1,000 registrants at a recent webinar presented by her company revealed that 51% of those polled had not completed their 2020 Form 1099-NEC state reporting duties.
Suppose a business willfully fails to furnish a valid payee declaration. In that case, it faces a minimum penalty of $550 per form or 10% of the income stated on the record, whichever is greater, with no maximum liability.
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