The January 31st deadline to complete and send 1099 and W-2 Forms to your contractors and employees is quickly approaching. Find out what you need to know about these forms and the penalties for failing to issue them to your contractors, employees and the IRS by the deadline.
Who should receive a 1099 or W-2 form?
You should establish if a worker is an independent contractor or an employee when they begin to perform services for you. If you’re unsure, you can obtain a determination from the IRS by filing form SS-8. We’ve provided a set of questions that should help employers to determine if someone is legally considered an employee or an independent contractor. If you’ve incorrectly classified a worker, you can certainly correct the situation by working with a tax accountant.
If the worker is an independent contractor, the employer should have requested that the worker complete a W-9 form. On that form, the worker should provide their name, address, and Social Security number or Employer Identification number, which is information the employer will need to issue a 1099 after the end of the year. This form must be sent to workers by January 31st, 2013 and the IRS by February 28th, 2013 if paper filing. It’s due to the IRS by April 1st, 2013, if the company is e-filing.
Employees should complete a W-4 Form before they commence work as federal and state taxes are withheld from their paycheck. The employer is then required to send a W-2 Form to employees by January 31st, 2013 for work done in 2012 and to the Social Security Administration (SSA) and IRS by February 28th, 2013 for paper filing and by April 1st, 2013 for e-filing.
What if I’m not sure if they should receive a 1099 form?
The laws for who should and shouldn’t receive a 1099 MISC form can get confusing. The basic 1099 requirement is for businesses that pay independent contractors such as freelance writers at least $600 during the tax year. But, it doesn’t have to be just to an individual, it could be a single member LLC or one treated as a partnership. Any payments to attorneys and rents paid to a landlord also meet the requirement.
What about penalties for failure to file in a timely fashion?
They may not seem that steep at first, but they can certainly add up and the IRS has recently increased the penalties. The penalty for failure to file a W-2 or 1099 form is $30 to $100 per return, with a maximum penalty of $500,000. It’s even higher at $250 per return if you blatantly disregard filing, which essentially means that you were notified by various parties such as employees, the IRS, state department, yet you did nothing about it.
Below are the 1099 & W-2 reporting deadlines and specifics.
1099 Deadlines & Specifics
- By January 31st – Send 1099 copies B & 2 to the contractor
- By February 28th – Send copy A to the IRS and if required copy 1 to the State Dept unless they plan to e-file in which case the deadline is April 1st.
- Copy C is the business owner’s (payer’s) copy for their records.
In addition, business owners MUST print copy A which is sent to the IRS in red ink!
If the contractor resides in a state in which there is no income tax such as Florida, copies 1 and 2 are not required to be sent. Some states also do not require a 1099 form as shown on this list.
W-2 Form Deadlines & Specifics
- By January 31st – Send W-2 Form copies B, 2 & C to the employee
- By February 28th – Send copy A to the Social Security Administration (SSA) and if required copy 1 to the State Department unless they plan to e-file in which case the deadline is April 1st.
How Can I Process 1099 & W-2 Forms Quickly & Cheaply
To help make life easier during tax season, particularly if you work with multiple independent contractors, many companies offer software that you can use to help generate 1099s quickly which is provided in this list on the IRS website.
More Questions? Browse Answers or ask your 1099 tax questions online.
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->What Do I Need to Know About 1099s?
->When Should I Update My W-4 Form?
->Prepare for New Cost Basis Reporting on the 1099 B Form