New filing requirements for W-2s and 1099s

As a business owner you well know there are a slew of government reports to file. Starting this year you need to file some of them more quickly.

The new deadline for filing W-2 and 1099 forms is January 31st. Previously, employers had until the end of February for paper filings and the end of March for electronic filings. Now, all filings – paper or electronic – are due by January 31st. Which means you can’t wait until after the Super Bowl to get this done.

What Are W-2s and 1099s?

As many know, W-2s report your employee’s income and withholdings. Form 1099s report other types of income. A 1099-DIV reports dividends and capital gains received, while interest income is reported on a 1099-INT. Most important for business owners, a 1099-MISC must be prepared for payments you’ve made over $600 in the course of your business year. Generally, such payments made from your business to a corporation are not required. For all others you must use a Form W-9 to get their tax information so you can properly report payments. Independent contractors working as sole proprietors are keenly targeted by the IRS. Without this reporting the IRS would never know about these independents’ income generating activities.

What is the Penalty for Late Filing?

A failure to provide Form 1099s without reasonable cause for the lapse subjects you to IRS penalties. The penalty applies if you fail to provide the statement by the deadline, fail to include all information required to be shown on the statement, or include incorrect information on the statement. The penalty is:

  • $50 per information return for returns filed correctly within 30 days after the due date, with a maximum penalty of $500,000 a year ($175,000 for certain small businesses):
  • $100 per information return for returns filed more than 30 days after the due date but by August 1, with a maximum penalty of $1,500,000 a year ($500,000 for certain small businesses); and
  • $250 per information return for returns filed after August 1 or not filed at all, with a maximum penalty of $3,000,000 a year ($1,000,000 for small businesses).

These penalties apply to all employees and any business owners, whether you operate through a C corporation, S corporation, LLC or an unprotected sole proprietorship.

Will This Cause More Errors & IRS Audits?

The new January 31st deadline has led some to worry that more reporting errors will occur. There is good news and bad news on this issue. The IRS does not hold you responsible for ensuring that others properly fill out the 1099s on the income you have received. But it is your responsibility to accurately report all the income that came your way. The only IRS penalties assessed will be against the payor who failed to issue or improperly issued a 1099. But what if you are only replying on other payors’ 1099s to track your income? If their 1099s are inaccurate, you are in trouble.

Reporting income you received that doesn’t match up with the 1099 filed by the business or self-employed individual that paid you in the previous year is an excellent way to trigger an IRS audit. It is far better to employ a bookkeeper to keep track of everything for you than to haphazardly fall into IRS scrutiny.

If you or your bookkeeper notices a mistake in a 1099 you receive you should promptly notify the business that sent it by phone and in writing. If the payor hasn’t yet sent the incorrect 1099 to the IRS it can be resolved easily. If it has been sent off then a new “corrected” 1099 must be filed with the IRS.

If the issuer of the 1099 won’t cooperate, you have some work on your hands. You can contact the IRS and explain the problem. You should address the incorrect 1099 with notes and documentation when submitting your tax return. As always, keep records of all your communications with the IRS and the wrongful 1099 issuer.

Form 1099 and W-2 filings require a lot of work for U.S. businesses. And with the new January 31st deadline for filings all that work must be performed even quicker.