What do the 2020 IRS 1099 Changes Mean for Microsoft Dynamics GP?
The IRS has made significant changes to 1099s and how nonemployee compensation will be reported for the 2020 tax year. If your company produces 1099s out of Microsoft Dynamics GP, it will be necessary to either apply a year-end update or upgrade to a newer version of GP depending on what version of GP you are utilizing.
What changes have the IRS made?
Starting in 2021 for the 2020 tax year, nonemployee compensation will no longer be reported in box 7 on Form 1099-MISC. Instead it will be reported on a separate form, the new 1099-NEC. In the example below, Z Builders is a contractor that subcontracts drywall work to Ronald Green, a sole proprietor who does business as Y Drywall. During the year, Z Builders pays Mr. Green $5,500. In years prior to 2020, this nonemployee compensation would go in Box 7 on Form 1099-MISC as shown below.
Starting in the 2020 tax year, the nonemployee compensation will be reported instead in Box 1 of the new 1099-NEC form shown below.
Form 1099-MISC will still continue to be used for other types of payments other than nonemployee compensation. Since box 7 on Form 1099-MISC is no longer nonemployee compensation, the IRS has revised Form 1099-MISC and rearranged box numbers for reporting certain income.
As seen below, Box 7 is now direct sales of $5,000 or more instead of for nonemployee compensation and other boxes, such as crop insurance and gross proceeds paid to an attorney, are now renumbered.
Full information on the 1099-MISC changes can be found on the IRS website: https://www.irs.gov/instructions/i1099msc
What does this mean for GP?
Microsoft has not yet published official guidance on the upcoming 1099 changes; however, Microsoft publishes year-end updates for Microsoft Dynamics GP between October and December every year. These updates are available for versions of Microsoft Dynamics GP that are still under mainstream support. Mainstream support is offered by Microsoft for 5 years from when the version was released. If you are on Microsoft Dynamics GP 2016 or later you will need to make sure the year-end update is applied so that you will have the latest 1099 forms.
Mainstream support for Microsoft Dynamics GP 2015 ended in April 2020. For this reason, if you are on Microsoft Dynamics GP 2015 or earlier and need to produce 1099s from GP it will be necessary for you to upgrade to a newer version of GP prior to the end of the year in order to be able to apply the year-end update with the new 1099 forms. If you are on Microsoft Dynamics GP 2015 or earlier and do not upgrade, there will be no way to print accurate 1099-MISC and 1099-NEC forms out of Microsoft Dynamics GP. Rand Group recommends upgrading well in advance of year-end to make sure there is sufficient time to successfully plan and execute the upgrade.
Do I need to do anything today?
If you are on Microsoft Dynamics GP 2016 or later you do not need to take any action until the year-end update is available. Microsoft has not announced how it will handle the 1099 updates but most likely they will create a new Tax Type of Nonemployee Compensation on the Vendor Maintenance Options screen. For example, in the screen below, prior to 2020, a subcontractor would typically be setup with a Tax Type of “Miscellaneous” and a 1099 Box of “7 Nonemployee Compensation.” Once Microsoft releases the year-end update, there will most likely be a new Tax Type of “Nonemployee Compensation.”
Microsoft Dynamics GP has an Update 1099 Information utility which can be used to reclassify vendors and/or transactions from one Tax Type to another. Once the new Tax Type is available the Update 1099 Information utility can be used to reclassify MISC-1099 Box 7 to the new Form 1099-NEC.
Rand Group Has Answers
At Rand Group we have the business acumen and application knowledge to help you achieve business success. If you have additional questions regarding the upcoming 1099 changes, contact one of our Dynamics GP representatives today. Furthermore, if you are considering upgrading Dynamics GP we can provide additional insights on the latest version of Microsoft Dynamics GP and help guide you through the considerations involved in upgrading your system.
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