Changes and Best Practices for Informational Returns—Forms 1099-MISC and W-2

There are two areas we want to bring to your attention to help facilitate your upcoming informational return filing season. The first deals with a new accelerated filing deadline for Form 1099-MISC, and the second looks at some best practices for filing informational returns with the IRS and the Social Security Administration (SSA).

New Accelerated Filing Deadline

There’s a new filing deadline for submitting Form 1099-MISC to the IRS and Form W-2 to the SSA for the 2016 tax reporting year. Beginning in 2017, the new filing deadline impacts paper filing and e-filing, requiring employers to generally submit both Form 1099-MISC and Form W-2 by January 31, 2017.

The new accelerated filing deadline is designed to help the IRS:

  • Improve its ability to identify errors on returns filed by taxpayers
  • Verify the legitimacy of tax returns
  • Properly issue refunds to eligible taxpayers to help reduce fraudulently filed tax returns

Before the new January 31 deadline, organizations had until February 28 to file paper filings and March 31 for e-filings of Forms 1099-MISC and W-2. Organizations now have 30 days to complete their filings rather than two or three months prior to the deadline changes.. As a result, it’s important to understand and make sure your organization has the systems, processes, and procedures in place to meet the new accelerated timeline.

Preparation Tips

Form W-9s are necessary to be sent to applicable 1099 vendors in order to obtain accurate and complete recipient federal identification numbers, name, address, and entity structure. In order to file 1099s with accurate identifying information, it’s important to obtain complete and correct W-9s and keep on them on file for the vendor. 

A best practice for Form W-9s is to send the form to vendors when they’re added to a payables system—this helps capture all your vendors.

Some other important tips to help you prepare your information return filings include:

  • Mapping your accounting systems to flag vendors that should receive Form 1099-MISC.
  • Considering employee classification and if proper treatment was applied. Do vendors truly represent independent contractor status or are they employees?
  • Performing a test run of your form W-2s to make sure the information is correct.

The test run includes checking these items:

  • Are employee reimbursements properly disclosed?
  • Is other compensation (other wages or supplemental wages) taxed correctly?
  • Are fringe benefits taxed correctly?
  • Have year-end bonuses and shareholder reasonable compensation issues been considered?
  • Are there any unusual compensation issues or payouts at year-end to be considered?

Best Practices for Informational Returns

There are best practices related to filing Forms 1099-MISC and W-2 that can help taxpayers avoid costly penalties.

Filing Best Practices

Form 1099-MISC. The new January 31 filing deadline applies to organizations reporting nonemployee compensation payments in box 7 on Form 1099-MISC. While the majority of Form 1099-MISC filers report only box 7 information, there are also other types of payments reported on Form 1099-MISC, such as rents or attorney payments. A best practice is to file all 1099-MISC forms by the January 31 deadline, to help avoid missing deadlines and costly late filing penalties.

Form W-2. In the past some organizations would first furnish copies of Forms W-2 to recipients to see if any corrections were noted by the recipient before filing the final form with the IRS and SSA. However, with the combination of the accelerated due date and the 30 day-automatic extension no longer permitted, organizations may want to review receipient information earlier than in the past. A best practice is to take a proactive approach in gathering accurate recipient information well in advance of the January 31 due date.

Best Practices to Avoid Penalties

There are certain steps you can take to help avoid the possibility of incurring penalties. Following is a checklist of items to help you file correctly and on time:

  • E-file rather than paper file if filing 250 or more information returns of the same type
  • File on time
    • Form 1099-MISC needs to be filed by January 31, 2017, regardless of paper or e-file method box 7 nonemployee compensation amounts.
    • Forms W-2 and W-3 need to be filed by January 31, 2017, regardless of paper or e-file method.
    • All other Form 1099s need to be paper filed by February 28, 2017, or e-filed by March 31, 2017.

Noncompliance can occur for multiple reasons, including:

  • Failure to file correct information returns by the due date without showing reasonable cause
  • Failure to include all information required to be shown on Form 1099 or W-2
  • Reporting incorrect tax identification numbers
  • If paper filing, failure to file forms that are machine readable (proper format)

Penalties for noncompliance can be significant:

  • $50 per return if filed or corrected within 30 days of due date of return
  • $100 per return if filed or corrected after 30 days but on or before August 1
  • $260 per return if filed or corrected after August 1

We're Here to Help

If you have other questions related to the new deadlines and what they mean for your organization, contact your Moss Adams professional.

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