The 1099/1042-S filing season continues and there will continue to be big changes in 2021 that Accounts Payable/Tax departments and CPA's will need to remain targeted upon in terms of performing their due diligence.

For instance, will there be actual physical updates to the 1099 MISC/NEC forms or filing process in 2021 (for 2022 filing season)? Indeed there are! Now we wait for the actual instructions for the forms and their surrounding usage to be tweaked to match the 1099-NEC and 1099-MISC changes just announced this month. In addition, the filing requirements could change even more. As of right now the 1099-NEC has to be individually filed with each state (it is not part of the combined federal/state filing program) and is basically almost impossible to get an extension for. That could change for next filing season. Those updates typically are not released until late in the summer/fall.

On top of that we wouldn't be surprised to see a new W-9 this year. In the past ten years it changed four times, with the last such change in 2018 - so it is due. In addition, we wouldn't be surprised to see new W-8's this year as well. These have not been modified since 2017. That is also a really long time without updates. Typically, the IRS has been updating the new W-9s in the fall when they do and the W-8's in the summer. Along these lines you really need to be careful. IRS Form W-8/1042-S enforcement remains aggressive, and the IRS has now ramped up the training of thousands of new enforcement personnel hired in recent years. Expect audits and proposed penalties to be higher this year than in recent years.

That warning also applies to the 1099 world where a continued focus on compensation paid to board members also ties into other problems we are seeing in terms of your due diligence requirements for 2021. For example, we have new fringe benefit/expense reimbursement rules for W-2 and 1099 filers that were released late last year. These changes will impact this year's 1099 compliance and filing that follows. Included in this are recent modifications to record-keeping and reporting surrounding meal reimbursements in connection with business entertainment. This, as well as travel and expense reimbursements, will be a big area to focus upon in 2021.

Furthermore, the PRO Act that just passed the House will (if it makes it through the Senate) dramatically revamp how workers are classified from a W-2/1099 reporting context. That means adjustments to the type of due diligence tests you need to run to prove compliance under the law. Even if this does not pass the Senate, please know that individual states are making big changes here in response to not only that but the passage of Prop 22 in California. Expect more uncertainty regarding the ABC test for determining if workers are being wrongly categorized as 1099 reportable or not. This is true whether its the federal government (departments of labor and treasury) looking at your operations or at the state level.

By the way, all of that will directly impact 1099-NEC reporting in particular. As will the ongoing flood of new state laws in response to the 1099-NEC and as the states adjust their existing 1099 filing processes to accommodate the new federal form. We expect these state level 1099 changes to continue at a furious pace. Moreover, state sales and use laws continue to see rapid and ongoing changes. Some state laws in this regard have changed as many as three times in the past two years - expect that to continue.

As such, there is quite a bit that will continue to impact your 1099 due diligence requirements in 2021. Much of this is happening as you read this, and there is a shocking amount of activity that had already been released in the new year. As such, we can see why 1099 MISC/NEC should remain a high focus during 2021. Even though the most significant revisions went into place for the 2020 tax year, if you are worried about 2021 then you are correct that there will still be significant changes to come.

We will continue to update our subscribers and webinar attendees as those changes occur. The big takeaway is to please stay tuned!