It’s time to start thinking about W-2 and 1099 preparation, says Wipfli LLP.
The federal law aimed at making it easier for the IRS to detect and prevent refund fraud will accelerate the W-2 filing deadline for employers to January 31. For similar reasons, the law also requires the IRS to hold refunds involving two key refundable tax credits until at least February 15.
Here are details on each of these key dates:
January 31 Deadline for Employers
The Protecting Americans from Tax Hikes (PATH) Act, enacted three Decembers ago, includes a new requirement for employers. They are now required to file their copies of Form W-2, submitted to the Social Security Administration, by January 31. The January 31 filing deadline also applies to certain Forms 1099-MISC reporting non-employee compensation, such as payments to independent contractors. The January 31 deadline has long applied to employers furnishing copies of these forms to their employees, and that date remains unchanged.
In the past, employers typically had until the end of February, if filing on paper, or the end of March, if filing electronically, to submit their copies of these forms to the IRS.
The accelerated deadline will help the IRS improve its efforts to spot errors on returns filed by taxpayers. Having these W-2s and 1099s earlier will make it easier for the IRS to verify the legitimacy of tax returns and properly issue refunds to taxpayers eligible to receive them. In many instances, this will enable the IRS to release tax refunds more quickly than in the past.
Recap on Reporting Requirements
All businesses (including landlords) must issue 1099 statements to the recipients and with the IRS for certain payments made. This includes payments to persons, partnerships and limited liability companies taxed as partnerships but excludes corporations in most cases.
These payments include but are not limited to:
- At least $600 for services (i.e., casual labor) in the course of a trade or business.
- At least $600 for rents and at least $10 for royalties in the course of a trade or business.
- At least $10 for interest (i.e., interest on officers’ loans) in the course of a trade or business.
- Payments to attorneys, including corporations, for services in the course of a trade or business of at least $600.
For 2018 payments, these informational returns must be provided to the both recipient and the IRS by January 31, 2019. Failure to file these returns can result in a penalty of $270, or $530 for an intentional disregard to file for each 1099 form, as well as a potential loss of the related tax deduction for the item.
Every individual or company that provides a service to your business needs to complete Form W-9, which you must retain in your files. Please use Form W-9 to request information from your vendors. Inform your vendor that the company name or the individual’s name/taxpayer ID number combo must match the IRS’s records.
If your vendor does not supply you with a properly completed Form W-9, backup withholding at a rate of 24% is required to be collected and paid to the IRS—no exceptions. The IRS can hold you, as a payer, liable for the 24% if it was required but not withheld.
Action to Take Now
Now is the time to review your vendor files and accounting software for W-9 information. If in doubt, request a current W-9 from your vendor. It is your responsibility to verify that all payees are included.
For additional information, see Wiplfi’s 1099 Information Reporting Guide for 2018.