Form 1099-NEC
The 1099-NEC disappeared in the early ’80s, and after a 38 absence is making a disco comeback! This form will be used to report non-employee compensation in box 1, meaning that nonemployee compensation will no longer be reported on Form 1099-MISC. Form 1099-NEC will need to be entered on a Schedule C. This form should be issued to your client by January 31, the same deadline for Form W-2. Box 4 will be used to report any backup withholding.
Form 8915-E
Form 8915-E will be used to report distributions and repayments for 2020 qualified disasters and 2020 distributions subject to the CARES Act, which allows up to $100,000 in distributions spread out over three years.
Form 5884-A – Employee Retention Credit
This is a new form that will be used to report a refundable credit that employers may receive under the CARES Act for retaining employees when their businesses were required to shut down due to COVID-19.
Form 7202 – Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals
This form will be used to calculate the refundable credits for sick and family leaves caused by the COVID-19 outbreak. The sum of the sick leave credit and the family leave credit will be included on Schedule 3 (Form 1040), line 12b.
Form W-4
Form W-4 was completely redesigned for tax year 2020. The goals of the redesign were to align the form with the changes resulting from the Tax Cuts and Jobs Act and prevent people from under-reporting their allowances. There is a new 5 step process that guides taxpayers through the form. The updates include:
- Personal withholding allowances were eliminated
- Step 3 allows taxpayers to indicate that they are eligible for the Child Tax Credit or the Other Dependent Credit
- Step 4 is an optional section that allows taxpayers to make adjustments for additional withholding, reduce withholding, and enter additional income tax they would like withheld from each paycheck
- The exemption line was removed
Form 1040
There are several changes to Form 1040 this year.
- Line 30 has been added for the Recovery Rebate Credit
- Line 10b has been added to account for charitable cash contributions up to $300 being treated as above-the-line deductions (reported on Schedule A)
- There are three separate lines for withholdings
- The question about cryptocurrency has been moved higher up on the form
Form 1099-MISC
With the reinstatement of Form 1099-NEC to report nonemployee compensation (details above), Form 1099-MISC has been updated for 2020. The box numbers have been rearranged to comply with the removal of nonemployee compensation.
- Box 7 – Payer made direct sales of $5,000 or more
- Box 9 – Crop insurance proceeds
- Box 10 – Gross proceeds to an attorney
- Box 12 – Section 409A deferrals
- Box 14 – Non-qualified deferred compensation income
- Boxes 15 – State taxes withheld
- Box 16 – State identification number
- Box 17 – Amount of income earned in the state
Clients expecting a 1099-MISC should receive the form by February 28. This due date has also changed from previous years.
Updated EIC Amounts
As is every year, the income limits and maximum credit amounts for EIC adjust for inflation. The below blurry image (sorry) reflects those changes … if you squint, the amounts show up clearly.
Tax Year 2020: Changes to IRS Form 1040
The IRS recently released a draft of Form 1040, U.S. Individual Income Tax Return. Here is a look at some of the most significant changes proposed for the tax year 2020 (returns filed in 2021). Please note: The information below is subject to change. The draft of Form 1040 should not be used to file your clients’ taxes.
Stimulus Checks and the Recovery Rebate Credit
According to the draft, a new Line 30 has been added on page two of Form 1040 for the “Recovery Rebate Credit.” This is where taxpayers who did not get the payments or should have received larger payments (due to birth of child or changes in income) will enter the additional amount due. This amount will be treated as a refundable credit. The reconciliation of stimulus payments will be done on a worksheet contained in the Form 1040 Instruction, which has not yet been released.
CARES Act Relief
The “Amount You Owe” section of the new 1040 now says, “Schedule H and Schedule SE filers, line 37 may not represent all of the taxes you owe for 2020.” This is because, under the CARES Act, employers can defer deposits and payments of the employer’s share of Social Security tax that would otherwise be required to be made between March 27, 2020, and December 31, 2020. This deferred amount will be reported in the Payments section of Form 1040, Schedule 3, Line 12e as a “Deferral for certain Schedule H or SE filers.” For self-employed taxpayers, a third page is being added to the Schedule SE where the deferred portion of the self-employment tax will be calculated. Schedule H will also be redesigned to address the deferred portion of the social security tax deposits made by taxpayers who have household employees. The new refundable credit for qualified sick and family leave will be entered on Schedule 3, Line 12b. The credit amount will be calculated on Form 7202, which the IRS has not released yet in draft form.
Above-the-line Charitable Contributions
For tax year 2020 only, charitable cash contributions up to $300 will be treated as above-the-line deductions (reported on Schedule A). The new Line 10b is for charitable contributions for taxpayers taking the standard deduction.
Reporting Income Tax Withholding
Instead of a single line for federal income tax withholding, the new Form 1040 has three separate lines for withholdings: Line 25a is for Form W-2, Line 25b is for Form 1099, Line 25c is for other forms (see instructions). Line 25d is the total tax withholdings. This should make withholding reconciliation much easier for tax preparers to recognize.
Reporting Cryptocurrency
The question about virtual currency first appeared in 2019 as a checkbox at the top of Schedule 1, Additional Income and Adjustments to Income. For tax year 2020, the question “At any time during 2020, did you receive, sell, exchange, or otherwise acquire any financial interest in any virtual currency?” has been moved just below the taxpayer’s name and address on the main Form 1040.
The IRS has taken the position that virtual currency is considered an investment property, and any transaction involving the sale or exchange of virtual currency must be accounted for on the tax return just as a taxpayer would account for the sale of any other investment. This will most likely involve a reportable transaction on Form 8949.
