As the end of 2016 approaches, it's time for employers to think about filing Forms W-2 and 1099. Forms W-2 are issued to employees to report compensation, withholding tax, and other items related to compensation. Forms 1099 are most commonly issued by businesses for payments in excess of $600 to vendors for services, rent, and other miscellaneous types of income. Forms 1099 do not need to be issued for purchases of inventory or other products.
Filing Deadlines
For calendar year 2016, the due date for sending Forms W-2 and 1099 to employees and vendors remains January 31, 2017.
In previous years, the due date for sending copies of these forms to the Social Security Administration (SSA) and to Internal Revenue Service (IRS) was the end of February. But for calendar year 2016, the due date for sending copies of the forms to SSA and IRS has been moved up to January 31, 2017.
The IRS indicates that receiving the forms earlier will make it easier to verify income and withholding reported on individual income tax returns and to hopefully identify potentially fraudulent requests for refunds.
Penalties
The IRS continues to impose strict penalties for late or non-filers as well as for those with incomplete or erroneous information. And it is important to note that separate penalties may apply: one for the filing and one for the payee statement. For example, if you fail to file a correct Form 1099-MISC with the IRS and don't provide a correct Form 1099-MISC statement to the payee, you may be subject to two separate penalties.
As in prior years, business owners are required to attest to having filed these forms on their business income tax returns.
Additional Notes on Forms 1099
In order to complete Form 1099, the business needs to obtain the name, address, tax entity type, and tax ID number for the vendor. If the vendor is an LLC, the business needs to know if the LLC is taxed as a single-member LLC, a partnership, or an S-corporation. Forms 1099 do not need to be issued to S-corporations or C-corporations unless the corporation is an attorney’s office.
Form W-9, Request for Taxpayer Identification Number and Certification, can be used to gather this information. Ideally, the form should be completed prior to payment to the vendor. We recommend businesses have a policy that vendors must complete and return Form W-9 before the business issues payment to avoid the scenario of scrambling at year end to get information that may be difficult to gather.
If the vendor uses a “DBA” (doing business as), that should be indicated on the W-9 and this name also needs to be shown on the Form 1099. Forms 1099 must be filed with the name registered with the IRS tax return and EIN. You may not use a Social Security number along with a business name.
Once forms are received, the IRS matches the names and tax identification numbers with income tax returns. The business will receive a notice if the identification number reported on the 1099 doesn’t match IRS records. If incorrect information isn’t corrected, IRS will notify the business to withhold 25% from future payments and remit this to the IRS. This is referred to as “backup withholding” and can be a cumbersome process.
Instructions and forms can be found on the IRS website at www.irs.gov. We are happy to answer questions and can complete these forms for you or train you how prepare the forms using QuickBooks.
| Form | Deadline |
|---|---|
| 2016 Forms W-2, W-3, and certain Forms 1096 and 1099-MISC | January 31, 2017 |
| 2016 Forms 1099-MISC, if reporting nonemployee compensation payments in box 7 | January 31, 2017 |
| Late Filing of Forms W-2, W-2G, 1098 and 1099 | Penalty |
| 2016 information returns filed less than 30 days late | $50 per return with a maximum fine up to $186,000 |
| 2016 information returns filed over 30 days late, but filed before August 1, 2017 | $60 per return with a maximum penalty of $532,000 |
| 2016 information returns filed after August 1 or not at all | $260 per return with a maximum penalty of $500,000. |
| 2016 information returns not filed due to intentional disregard of the rules | $530 per return with an unlimited maximum penalty! |
