Background
Effective January 1, 2020, the IRS has required employers to use Form 1099-NEC to report all nonemployee (independent contractor) compensation. Previously, employers reported this compensation data in Box 7 of Form 1099-MISC.
The Massachusetts Department of Family and Medical Leave (DFML) has now issued a banner notice on their website that, as of January 1, 2020 IRS Form 1099-NEC compensation is exempt from paid family and medical leave (PFML) contributions.
Summary
On April 27, 2020, the DFML issued guidance to Massachusetts employers about their obligation to withhold PFML contributions from nonemployee compensation. Effective January 1, 2020, employers do not need to withhold or remit PFML contributions from nonemployee compensation that will be reported on the form 1099-NEC. Individuals whose compensation was previously reported on 1099-MISC Box 7 but is now reported on form 1099-NEC are also exempt from PFML contribution withholding for the 2020 tax year.
Employers who have already remitted PFML contributions for Q1 of 2020 can file an amended return that does not include nonemployee compensation from the form 1099-NEC. If / when the DFML approves this amended return, they will issue a credit that employers can apply to their PFML contributions for a future quarter.
The DFML has also issued a reminder that any self-employed individuals, whether they report their income on the 1099-MISC or the 1099-NEC, have the right to opt into the Massachusetts PFML program. They can find instructions to do so here.
Employer Next Steps
- Massachusetts employers who pay out nonemployee compensation should ensure that they are using the correct form to report this compensation to the IRS.
- If you are currently withholding and remitting PFML contributions on behalf of your 1099 staff, please stop and review the guidance above. If you believe that you should continue to withhold these contributions, please consult with an HR or compensation professional to determine if this is the case.
- If you are a Full-Service or Virtual HR client and would like our assistance with updating your Family and Medical Leave policies, please email us.
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This content is provided with the understanding that HR Knowledge is not rendering legal advice. While every effort is made to provide current information, the law changes regularly and laws may vary depending on the state or municipality. The material is made available for informational purposes only and is not a substitute for legal advice or your professional judgment. You should review applicable laws in your jurisdiction and consult experienced counsel for legal advice. If you have any questions regarding this content, please contact HR Knowledge at 508.339.1300 or email us.
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