Reporting Non-Employee Compensation with the IRS

how to calculate tax on investments

The following is a video of an interview with paralegal Brandi Litteral and attorney Jonathan Mishkin. In this interview, they discuss reporting non-employee compensation with the IRS.

Video Transcript:

Brandi: Thanks for joining Jonathan Mishkin; a trusted expert in tax law and tax controversy.
I’m your host and Jonathan’s paralegal, Brandi.
Today Jonathan will discuss reporting non-employee compensation with the IRS.
Hi Jonathan, what do we need to know about reporting non-employee compensation to the IRS?

Jonathan: Good morning, Brandi, good morning everyone.
This is important it’s sort of a new way of reporting folks that you are paying in your business that are not employees.
So when a business hires an independent contractor, someone that’s not a full-time employee, a project-type of person;
As a lot of you are aware, the employer is not responsible generally for withholding employment-related taxes or income taxes from the paid compensation.
That independent contractor is normally responsible, however, the IRS needs to track this information so there’s a law that when you’re a business and you pay non-employee compensation in excess of six hundred dollars ($600) you must report these payments to the IRS.
The form that they would like you to use now is called a 1099-NEC (Non-Employee Compensation).

Just like you would with other 1099 forms, you want to file these by January 31st of the following tax year.
So for example, 2021 information would have been required by January 31 of 2022.
There is no automatic 30-day extension to file these, but if you’re under some kind of hardship you can request an extension.
Non-employee compensation reportable on this form – please note – is subject to backup withholding, if the person you’re paying refused to provide you with their taxpayer identification number via a W-4.
Or, (if) you receive correspondence from the IRS saying “You must backup-withhold for this person” because they’re having a mismatch between that person’s TIN and the IRS records.

Some have asked me,”What is a TIN?”
A TIN can be one of the following.

  • Sometimes, independent contractors are unincorporated, it’ll be a social security number
  • Sometimes they’ll be incorporated, or they’ll go out and get an employer identification number for their business
  • There’s also ITIN’s for people who are foreign that are working here

And some say to me, “What is backup-withholding?”
This is a type of requirement where the IRS says a percentage of the tax that’s going to be due on this income is withheld by you, so it’s sort of a semi-prepayment of the tax, and if you fail to do it you can be liable for it.

Brandi, thank you for helping me put forward this blog today, appreciate it.

Brandi: Yeah, Thanks Jonathan.
If you need assistance with tax planning or resolving your tax issue please log on to www.jmishkinlaw.com to schedule a consultation with Jonathan.

Jonathan Mishkin

Jonathan D. Mishkin focuses his practice on tax/trust controversy, estate planning, taxation and closely-held business advisory services with offices in Portland, Bend and West Linn. Drawing on deep experience gained inside both large accounting firms and large law firms, Mr. Mishkin capably advises and counsels individuals, families and their businesses, and trusts/trustees.

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