The start of the New Year marks the beginning of the IRS informational reporting season that will keep most business owner’s heads spinning. None are overbearing or difficult unless, of course, you don’t get them right the first time. Failure to correctly file W-2 and 1099 forms could get 2017 off to a not-so-happy start.
Wage reporting statements:
W-2 forms must be furnished to employees and filed with the Social Security Administration no later than January 31, 2017. It is possible to request a 30 day extension by submitting Form 8809. If errors are made with the initial filing, W-2c forms can be used to correct them. My advice is to work with your tax professional to make sure that you get them right the first time.
The IRS list the most common mistakes such as omitting decimal points and cents, using a font that is too small or large, (12-point Courier font is recommend), and incorrectly checking the “Retirement plan” box.
My experience suggests that a more careful look into the numbers that make up taxable wages will save you both time and money. Here are our top suggestions to correctly file W-2 forms:
- Incorporated businesses filing form 1120S are required to include fringe benefits into > 2% shareholder’s taxable income. Fringes include: health insurance, HSA plans, and personal use of company owned vehicles. You should contact your payroll provider to make sure they have the information needed.
- Employee business expense reimbursements made under an accountable plan are generally not required to be included on form W-2. Payments made as part of a non-accountable plan must be reported as taxable wages. Be sure to communicate any reimbursement plans to your payroll and tax providers as the substantiation requirement are very strict.
- Employers Earned Income Credit notice. All employers must notify employees who have no income tax withheld that they may be able to claim an income tax refund as a result of the Earned Income Credit (EIC)
Penalties for failure to correctly file W-2 forms by the due date can range from $50 to $260 per W-2.
Warning, this is not for the faint of heart! There are over 30 informational returns that a business might be required to be file including payments for: interest, dividends and rents. Reporting is also required for payments to: foreign persons, crew members of fishing boats, and attorneys.
1099 MISC Forms that report nonemployee compensation are required to be filed for all non-incorporated service providers, not considered to be employees, who have been paid more than $600.
Many business owners consider these filings as trivial and not worth the effort. Sound familiar? Please heed my warning, these informational returns are essential to the U.S. Treasury that failure to correctly file them can and carry penalties ranging from $50-260 per informational return. Small Business Owners do have the special privilege of having the penalty capped at $1,064,000 per year.
As you look to start 2017 on the right foot, I suggest that you take the time to meet with your tax professional and payroll provider to make sure that your informational returns are filed right the first time.
About the Author: Jamie Boulette, CPA has 30 years of tax experience and is managing director of One River CPAs with offices in Bath and Oakland. He can be reached at firstname.lastname@example.org or 371-8002.