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IRS ‘Fumble’ Means Additional Tax Reporting For Companies In Extra Than 30 States


The fantastic thing about Mixed Federal State Submitting is that you just don’t need to report the identical info twice on your federal and state/native taxes.

However final 12 months, the IRS didn’t embrace its new type for reporting non-employee compensation (1099-NEC) in this system. The shape is utilized by enterprise like Uber

UBER
and Doordash that rent unbiased contractors to do work. Consequently, 36 states that take part within the mixed tax reporting program scrambled to enact their very own direct reporting requirement.

For tax 12 months 2021, the shape is included within the sharing program. However now that states have their very own reporting methods in place, they’re reluctant to scrap them.

“The IRS actually fumbled [when] they failed to incorporate it in that sharing program,” mentioned Sovos tax knowledgeable Wendy Walker. “By having 36 states exit and construct their very own necessities final 12 months, why would they need to shift again over to the IRS’ sharing program this 12 months? In the event that they did, it means they must wait longer to get that info, which doesn’t make sense.”

As of mid-January, most of these 36 states are nonetheless requiring companies to report their non-employee compensation straight, in keeping with my evaluation and data from Sovos. They’re:

Alabama, Arizona, Connecticut, Delaware, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Utah, Vermont, Virginia, West Virginia and Wisconsin.

Walker mentioned she’s involved that companies who don’t adjust to these submitting necessities could also be penalized. Throughout a latest webinar hosted by her firm, a ballot of the greater than 1,000 registrants revealed 51% of respondents indicated they didn’t adjust to their 2020 Type 1099-NEC state reporting obligations.

If a enterprise deliberately disregards the requirement to offer an accurate payee assertion, it is topic to a minimal penalty of $550 per type or 10% of the earnings reported on the shape, with no most. 

The next states have launched new steering saying they’ll settle for the 1099-NEC from the IRS and companies don’t must file individually:

California, Hawaii, Illinois and New Jersey.

Employers have till Jan. 31 to submit their 1099-NECs.

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