2019 Information Returns
It is that time of year when many information tax forms are required to be prepared. These forms must be timely mailed to recipients and /or filed with the IRS by January 31st for all reportable payments made in the course of your business. Note, most personal payments are not reportable. Care should be taken in complying with the many rules and regulations for the proper preparations of these forms. Stiff penalties may apply for careless non-compliance. A simple error of filing forms by mail instead of electronically when required could cost $100 per form which could amount to thousands of dollars. Your tax advisor could be of help in avoiding those penalties.
The most common forms required to be filed by businesses are the forms W-2 for wages paid and 1099-MISC for other reportable business payments. In order to properly file these forms, you should have already received forms W-4 from employees and a W-9 for all other payments made by your business. Best practice is to require a W-9 to be provided by every vendor before a payment is made. A 30% penalty could be imposed by the IRS for payments made to a vendor that is subject to backup withholding when a W-9 has not been obtained before the payment is made. If you do not already have these forms request them ASAP. Electronic copies can be used this year with proper compliance.
Form W-2 Compliance
Due date for mailing the W-2 form to the employee and filing with Social Security Administration (SSA) is January 31, 2020, whether you file using paper forms or electronically. An extension of time to file Form W-2 with the SSA is not automatic. You may request one 30-day extension to file Form W-2 by submitting a signed completed application on Form 8809, Application for Extension of Time to File Information Returns, indicating under penalties of perjury that at least one of the criteria for granting an extension applies. Additionally, do not forget to file a Form W-2 for any household help. Do not truncate social security numbers shown on Forms W-2.
Form 1099-MISC Compliance
In the past few years there have been a number of changes and updates regarding the reporting rules for 1099-MISC Forms. The "general rule" is that business owners must issue a Form 1099-MISC to each person to whom you have paid at least an accumulated $600 in rents, services (including parts and materials), prizes and awards or other income payments. You are required to issue 1099-MISC reports only for payments you made in the course of your trade or business. The penalties for not doing so can vary from $30 to $100 per form, depending on how long past the deadline the company issues the form. If a business intentionally disregards the requirement to provide a correct payee statement, it is subject to a minimum penalty of $250 per statement, with no maximum. Bottom line, the penalties can add up!
What/who are reportable persons? A reportable person is a person or company you have paid for services that isn't your employee. The most common exceptions for form 1099 filing are:
Vendors operating as S or C-Corporations including LLCs or partnerships that are taxed as an S or C-Corporation (you find their filing status from their W-9...see below)
Sellers of merchandise, freight, storage or similar items.
Payments of rent to or through real estate agents acting as property managers. However, keep in mind you need to issue a 1099 to a landlord to whom you are directly paying rent, unless they meet another exception.
You do not need to report payments made by credit card payments and PayPal. The IRS allows taxpayers to exclude from Form 1099-MISC any payments you made by credit card, debit card, gift card or third-party payment network such as PayPal. (These payments are being reported by them on Form 1099-K.) However. it may be easier to report those payments based on your accounting system.
Exceptions to the exceptions
Lawyers and Doctors (medical providers) get the short end of the stick. The government doesn't trust they will report all of their income, so even if your lawyer or doctor is incorporated (taxed as a S or C-corporation), you are still required to send them a Form 1099 if you paid them more than an accumulative $600 during the year. However, you are not required to report payments made to a tax-exempt hospital or extended care facility.
If you made payments that exceed $600 for the year to your Veterinarian, even if they are taxed as a corporation, make sure to issue a form 1099 to them at year-end. Instead of being listed in box 7 (non-employee compensation), these payments will be listed in box 6 (medical and health care payments).
Foreign agricultural workers may require special reporting. Report in box 3 compensation of $600 or more paid in a calendar year to an H-2A visa agricultural worker who did not give you a valid TIN. You must also withhold federal income tax under the backup withholding rules. For more information, go to IRS.gov and enter “foreign agricultural workers” in the search box.
The W-9 is your best friend. Some of you may be frustrated that you don't have the information you need to issue a 1099. One of the smartest procedures a business owner can implement is to request a W-9 from any vendor before you pay them. Using this as a normal business practice will give you the vendor's mailing information, Tax ID number and also require them to indicate if they are a corporation or not. You can download a forms W-9 from www.IRS.gov.
Unfortunately, you CANNOT go to www.IRS.gov and download a bunch of 1099 Forms and send them out to your vendors. The form is pre-printed in triplicate by the IRS. Thus, you have to order the Forms from the IRS, pick them up at an IRS service center or hopefully grab them while supplies last from the post office or some other outlet. There are a number of online vendors that provide alternatives that enable you meet the Form 1099-MISC filing requirements electronically.
All taxpayers are required to issue and mail out all Form 1099s to vendors by January 31st. This year you also have to compile all of your 1099s and submit them to the IRS with a form 1096 by January 31. The old rule was the end of February. Your accountant may be helpful for this task.
If you have more than 250 forms to file, you MUST file electronically with the IRS. If you are required and fail to do so, and you do not have an approved waiver or establish reasonable cause, you may be subject to a penalty of up to $100 per return for failure to file electronically. However, you can file up to 250 returns on paper; those returns will not be subject to a penalty for failure to file electronically.
Also, if you hire a non-U.S. citizen who performs any work inside the United States, you would need to file the 1099. It is your responsibility to verify that the worker:
Is indeed a non-U.S. citizen, and
Performed all work inside or outside the United States. For that purpose, in the future you might want to have that foreign worker fill out, sign and return to you W-8BEN.
Filers of Forms 1099 may truncate their taxpayer identification number (XX-XXX1234) on the payee statement to combat identity theft.
Miscellaneous Other Filing for Large Employers
Employers with 50 or more full-time employees (including full-time equivalent employees) must use Forms 1094-C and 1095-C to report the information required about offers of health coverage and enrollment in health coverage for their employees. Form 1094-C must be used to report to the IRS summary information for each employer and to transmit Forms 1095-C to the IRS. Form 1095-C is used to report information about each employee. Due dates are as follows:
January 31, 2020: IRS deadline to furnish 1095-C schedules for 2019 to employees.
February 28, 2020: Deadline to file1094-C / 1095-C schedules for 2019 if paper filing.
March 31, 2020: Deadline to file 1094-C / 1095-C schedules for 2019 if electronic filing
Summary
The information in this article is a general overview. The IRS regulations for W-2 and Form 1099-MISC are complicated and every business situation is different. Talk to your tax professional before you make decisions about who should or should not receive a W-2 or 1099-MISC. Don't ignore the 1099, or the process, and get with your tax professional to make sure to finish up the process before the end of January. This could save you major penalties. Most accountants have an affordable procedure to assist in the filing and can be a huge resource. Be careful with websites. It can cost you big time if you miss even a small rule or procedure. Moving forward this year, make sure to get a Form W-4 and Form W-9 from all your employees and vendors respectively before they get paid. This will save you a lot of headaches next January.