05 November 2020 North Carolina issues guidance on the filing of Form W-2 and Form 1099 for tax year 2020; new Form 1099-NEC will be accepted The North Carolina Department of Revenue has issued various updates on the requirements that apply to the filing of the 2020 Forms W-2 and other information statements due in 2021. The North Carolina Department of Revenue announced that it will again automatically waive the penalty for failure to electronically file Form NC-3, Annual Withholding Reconciliation, and Forms W-2/1099 for calendar year 2020. However, the deadline for filing, whether electronically or on paper, remains January 31, 2021. Forms W-2/1099 on paper. However, if a taxpayer receives a proposed assessment of the $200 penalty that would normally be assessed for failure to file electronically, the taxpayer should contact the Department (see the notice for instructions). The Department will conform to the new IRS requirement that, beginning in tax year 2020 (filed in 2021), nonemployee compensation is reported on the new Form 1099-NEC rather than on Form 1099-MISC. Until further notice, the Department will continue to only require the filing of Forms 1099-MISC and 1099-NEC if the statements reflect state income tax withholding. New requirement to withhold state income tax from nonemployee compensation of more than $1,500 and report on new state Form NC-1099M As we previously reported, businesses that pay nonemployees more than $1,500 during a calendar year must deduct and withhold North Carolina income tax at a rate of 4%. (EY Tax News Alert 2020-0431, 2-25-2020.)
Effective January 1, 2020, businesses are required to use new Form NC-1099M, Compensation Paid to a Payee,to report the nonwage compensation paid to a payee for services performed in North Carolina and the North Carolina income tax withheld from that income. (State Forms NC-1099-ITIN, Compensation Paid to an ITIN Contractor, NC-1099PS, Personal Services Income Paid to a Nonresident, have been discontinued.) Note that if a business is required to complete a federal Form 1099-MISC or Form 1099-NEC to report the nonemployee compensation paid to a payee, the filing of Form NC-1099M is not required. Businesses are reminded not to use NC-1099M to report wages (Form W-2 is used for that purpose). Businesses using new federal Form 1099-NEC to report nonemployee compensation to the federal government are required to submit, as a part of the taxpayer's annual Form NC-3 filing requirement, a paper or electronic copy of any federal Form 1099-NEC statement that reports North Carolina income tax withheld. For additional details, see instructions on Form NC-1099M and Directive TA-19-1, Expansion of Requirement to Withhold State Income Tax from Certain Non-Wage Compensation Recipient. For more on North Carolina withholding tax, go here. For more on filing Forms NC-3/W-2/1099 electronically, go here. Starting with tax year 2020 (filed in 2021), the IRS requires that nonemployee compensation be reported on new Form 1099-NEC rather than Form 1099-MISC. This reporting change was made because Forms 1099-MISC were required to be filed by February 28 (March 31 if filed electronically) except if the Form 1099-MISC included nonemployee compensation, in which case the filing deadline was January 31. With the separate Form 1099-NEC, it will be easier for businesses to comply with the differing filing due dates. Businesses should also note that the although North Carolina participates in the federal Combined Federal/State Filing (CF/SF) program for the filing of Forms 1099, Form 1099-NEC is not included in the program. Accordingly, a Form 1099-NEC that shows North Carolina state income tax withheld will need to be filed separately with the Department. (IRS Publication 1220 for tax year 2020, p. 22-24.)
Document ID: 2020-2630 | |||||||||
