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IRS Form 1099-NEC compensation is now exempt from paid family and medical leave [PFML] contributions, according to a recent email from the Massachusetts Department of Revenue. You can view all of the information below.
As you may know, the IRS now requires non-employee compensation paid to individuals on or after January 1, 2020 to be reported on IRS Form 1099-NEC. Previously, non-employee compensation was reported on Form 1099-MISC, box 7.
PFML contributions are required with respect to certain payments to individuals reported on IRS Form 1099-MISC. The Department of Family and Medical Leave [DFML] has determined that employers who employ individuals whose compensation as of January 1, 2020 will now be reported on IRS Form 1099-NEC are no longer required to make contributions on behalf of these individuals. While contributions are not required, the individuals may choose to opt in to the PFML program.
Refunds of contributions already made with respect to IRS Form 1099-NEC compensation
Employers who made contributions on behalf of individuals whose compensation as of January 1, 2020 will be reported on IRS Form 1099-NEC, should now file amendments to the original PFML returns reporting such contributions. An amended return should be filed excluding any contributions that were made with respect to IRS Form 1099-NEC compensation. The amended filing will automatically trigger an overpayment and result in a refund to the filer of the return. Please note that contributions made between October 1, 2019 and December 31, 2019 on behalf of individuals whose compensation was reported on Form 1099-MISC are not eligible to be refunded.
How to amend your filings to exclude contributions made for IRS Form 1099-NEC compensation from January 1, 2020 through MassTaxConnect. You have two choices.
Amend your return by importing an Excel file:
Manually entering data (No excel file):
Under M.G.L. c. 62, § 5A(a), income of a non-resident derived from a trade or business, including any employment, carried on in the commonwealth is sourced to Massachusetts. Pursuant to this rule, all compensation received for personal services performed by a non-resident who, immediately prior to the Massachusetts COVID-19 state of emergency, was an employee engaged in performing such services in Massachusetts, and who during such emergency is performing such services from a location outside Massachusetts due solely to the Massachusetts COVID-19 state of emergency, will continue to be treated as Massachusetts source income subject to personal income tax under M.G.L. c. 62, § 5A and personal income tax withholding pursuant to M.G.L. c. 62B, § 2.
New MA DOR Commissioner Geoff Snyder released the PFML, workforce development and MA income tax consequences of COVID home based employees. MA DOR TIR 20-5 details the tax treatment of working from home as a MA resident for an out of state company and working at home as a MA non-resident for a MA based company. Basically, everything continues as it was before the COVID outbreak.
The Mass Law Reform Institute has posted a great one stop shop for stimulus payment updates on The Mass Legal Aid webpage. Consider bookmarking masslegalhelp.org/covid-19/stimulus-payment as a value resource that can provide guidance to taxpayers.
The IRS published News Release IR-2020-76 late Monday night that Wednesday April 22 is the deadline for direct deposit social security recipients to complete the extra step that adds dependent children to their stimulus payment. Those receiving the $1,200 stimulus impact payment may receive and additional $500 for each qualifying dependent child. Head of Household citizens will receive a $1,800 payment with an additional $500 for each qualifying dependent child. The qualifying dependent child is a under age 17 with a social security number.
At IRS.gov, non-filers may register using the Non-Filers: Enter Payment Info link. Once an economic stimulus payment has been issued, additional funds are not available until a 2020 tax return is filed. Non-filers with no direct deposit social security benefits may continue to register at IRS.gov.
The IRS has created a Coronavirus Tax relief and Economic Impact Payments page to help answer any underlying questions taxpayers and tax professionals may have. You can click here to access the page.
About sixty million stimulus payments were made this week. House Ways and Means Chair Richard Neal of Massachusetts laid out the expected timeline for Economic Stimulus Payments. The first wave was issued to tax filers who included personal direct deposit information on their return. A second wave of direct deposits will be attempted at the end of the month. The targeted group in the second wave is the non-filers whose direct deposit information is on record with the US Treasury, primarily Social Security benefits recipients.
The third phase is gradually released. IRS will begin to issue paper checks beginning in May at the rate of five million checks per week to what it assumes are the remaining 110 million taxpayers. The first round of checks will go to the lowest AGI taxpayers. The last issuance will ripple at the end of September. Included in this third segment are the 21 million rapid anticipation refund filers. These are taxpayers who buy a bank account or fixed amount debit card from the tax preparer to receive a portion of their annual refund. Economic Stimulus payments will not be made on a RAL account or debit card. (The Mef schematics include a RAL indicator.)
Not included in the automated stimulus give-away are non-filers who do not receive social security benefits by direct deposits and do not file tax returns. By mid-May, the IRS will post on its website a secure portal that will allow citizens to register, update direct deposit information and check on their stimulus status.
Carlton Smith, a retired partner from Robert & Holland in NYC and volunteer at the Harvard Low Income Tax clinic, points out in ProcedurallyTaxing.com that IRS Notice 2020-23 is an update to IRS Notice 2020-18 and allows an extension of the IRS 30 day, 90 day and three year time sensitive deadlines. The extended relief is automatic. This notice also clarifies that taxpayers wishing an extension of time until October 15th to file a 2019 tax returns may file form 4868 or other Application for Extension of Time forms by July 15th.
Several of us have heard from clients who are not seeing the IRS withdrawing from their account as planned. Some have not had any money withdrawn and in one case, it took 10 days. As Milton Cooley (an NAEA colleague) pointed out, "People will spend the money if they see it in their account," so even the 10 day delay can be a problem.
I am currently working with the IRS and NAEA to resolve the issue. It is not our professional tax software (it's affected users of at least 3 different softwares). The earliest date I know about is March 27. I will keep everyone informed of what I learn.
If you have this situation, please email me immediately. Send your name, email, software, form filed, date filed, date accepted, date of withdrawal, whether the state also had a withdrawal, and if the state withdrawal was successful. Please email them to KozLogTax@gmail.com
It's been a challenge to stay current with the radically different procedures for this one federal and state income tax season. MA DOR has published a one-stop comprehensive webpage of all the latest relevant changes. Imbedded in this information are links to pertinent federal sources. Consider bookmarking this important DOR COVID Update page as your primary online reference tool toward a successful, and extended, filing season.
Additionally, MA DOR takes email requests. Send your questions and issues that need clarification to TaxProFeedback@DOR.State.MA.US
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