Year-end is approaching, and for employers, that means it’s time to ensure compliance with tax regulations by preparing and distributing essential tax forms to employees and contractors.
As an employer, there are several key responsibilities and steps you need to ensure at year-end regarding W-2s and 1099s to remain compliant with tax regulations:
For W-2s (Employee Wage and Tax Statements):
- Collect Employee Information: Ensure that you have accurate and up-to-date information for all your employees, including their names, Social Security numbers, and addresses.
- Withhold Taxes: Withhold federal income taxes, Social Security taxes, and Medicare taxes from your employees’ paychecks throughout the year based on the information provided on their W-4.
- Prepare W-2 Forms: By January 31st of the following year, you must provide each employee with a W-2 form that details their total earnings, tax withholdings, and other relevant information. This form should also be sent to the Social Security Administration (SSA).
- File with the SSA: Submit copies of all W-2 forms, along with a W-3 transmittal form summarizing the information, to the SSA. This is usually done electronically through the SSA’s Business Services Online (BSO) system.
- Keep Records: Retain copies of W-2 forms and related records for at least four years, as the IRS may request them for verification.
- Get Contractor Information: Be sure to have accurate information for all individuals and businesses to whom you’ve paid $600 or more during the tax year for services rendered. This includes their names, addresses, and Taxpayer Identification Numbers (TINs) or Social Security numbers.
- Report Payments: By January 31st of the following year, provide each contractor or vendor who received $600 or more in payments from your business during the year with a 1099 form specific to the type of income (e.g., 1099-NEC for non-employee compensation). You must also send copies of these forms to the IRS.
- File with the IRS: Submit copies of all 1099 forms, along with a Form 1096 transmittal form summarizing the information, to the IRS. This is typically done electronically through the IRS’s Filing Information Returns Electronically (FIRE) system.
- Backup Withholding: If a contractor fails to provide a valid TIN or if they are subject to backup withholding, make sure you withhold the appropriate percentage and report it on Form 1099.
- Retain Records: Keep copies of 1099 forms and related records for at least four years, as they may be needed for audit or verification purposes.
- Use Correct Forms: Ensure you are using the most up-to-date versions of W-2 and 1099 forms, as the IRS may update them from year to year.
The responsibilities associated with year-end tax reporting can seem daunting, especially if you’re unfamiliar with the intricacies of W-2s and 1099s. However, understanding these forms and following the proper procedures is essential to avoid penalties and maintain a smooth relationship with tax authorities.