Tax season is upon us and for most small business owners it begins with the annual W-2 and 1099 reporting process for employees and independent contractors.
Tax laws and reporting dates change each year, so we’ve put together an overview of what you need to do to ensure you are reporting wages and payments correctly this year.
Issuing and Filing W2s – What You Need to Know
If you paid wages to employees in 2013, then you’ll need to issue them with a W-2 Form. The form reports wages, tips, income tax, federal, social security and Medicare tax withholding, and other employment-related payments.
Depending on your payroll system, W-2s can be completed in paper format and given to employees or processed online and printed out automatically. This year’s mailing deadline for W-2s is January 31, 2014.
Once you’ve issued your W-2s to employees, be sure to ask them to check that all the information on the form is accurate. Any errors can be corrected and re-filed using Form W-2C.
In addition, you’ll need to send a copy (Copy A) to the Social Security Administration (SSA) by mail or electronically. The SSA will share this information with the IRS. The deadline for mailing copies is February 28, 2014, if you file electronically you have until March 31, 2014.
In addition to the W-2, you should also submit a W-3 Form (basically a recap of all your W-2s that summarizes all wages paid to employees and all federal taxes withheld). Again, this should be submitted by February 28, 2014.
What About Reporting the Cost of Healthcare Coverage?
The Affordable Care Act has resulted in a change in W-2 reporting requirements, but only for employers who retain 250+ employees. These employers must report the cost of health insurance coverage under an employer-sponsored group health plan on all W-2s in 2014. Small employers (those with under 250 employees) were slated to begin reporting coverage in 2013, but this has since been delayed until the IRS decides otherwise. Read more in this FAQ from IRS.gov (refer to Q4).
How to Prepare and Distribute Form 1099-MISC to Contractors
Did you use the services of an independent contractor in 2013? Generally, if you paid an independent contractor $600 or more in payments in 2013 or at least $10 in royalties or broker payments, then you must issue them with Form 1099-MISC (Copy B and Copy 1) by January 31, 2014. For more specifics on when you are required to issue 1099s, check out this guidance from the IRS.
If you want to file a paper 1099-MISC, you’ll need to use an original copy (not the PDF on IRS.gov) you can order these directly from the IRS online or by calling 1-800-TAX-FORM. Forms are also available from office supply stores.
Once you’ve completed all your 1099s, you’ll need to send Copy A to the IRS by February 28, 2014 (March 31, 2014 if you file electronically). The forms should be accompanied by Form 1096 which totals all the information from the 1099 forms. Copy 1 goes to your state tax department (usually by February 28 also, but check your state tax department), Copy C is for your records.
It’s always a good idea to consult a tax advisor or your payroll provider to ensure you have all your boxes checked when it comes to staying compliant with wage, tax withholding and 1099 reporting requirements.