Forms W-2 and 1099: What Forms Are Issued at Year End?
Happy New Year, it is officially a new decade! Is your business ready to turn the page on 2019? This time of year usually brings panic for business owners as they consider all of the forms, filings and tasks needed to properly comply with annual federal, state and local reporting requirements. Some business owners don’t know if their business financial records are ready for year end. Ready or not, the unavoidable list of forms and filing deadlines are equally stressful for all business owners.
However, it does not have to be such an overwhelming task with proper planning and preparation. If it takes a business the entire month of January to prepare and process year end financial records then there is room for improvement. Organized records are a key element to making the year end reporting process efficient, especially for business employees and contractors. This includes making sure your business employee and contractor files are properly organized and updated with the information needed to identify what type of reporting is required and issue appropriate forms.
The leading questions business owners often have for employee and contractor reporting is, “What forms do I need to file?”, or “How do I know which contractors need a Form 1099?”. Let’s concentrate on what’s needed and how to answer these questions.
All employee records should be complete and accurate for filing Forms W-2, Wage and Tax Statement. It is good practice to have your business employees annually review and update their Form W-4, Employee's Withholding Certificate, for changes in legal names, address, status, dependents, and other adjustments. For 2020, the IRS has issued an updated Form W-4.
For contractors, verify that you have obtained a Form W-9, Request for Taxpayer Identification Number and Certification. This provides information to determine filing status and accurate reporting of payee names, tax classification and taxpayer identification number. If you do not have a Form W-9 on record for all contractors, have them complete and submit the forms to you right away.
We also recommend logging email addresses for both employees (personal email) and contractors in business records for use with electronic processing and filing. This will ensure accurate data and timely delivery on Forms W-2 and 1099 filed with the IRS and state agencies. See resources below for links to relevant instructions and forms.
Once you are certain that all employee and contractor information is accurately updated in your business records, then you are ready to begin determining what forms you need to issue. Don’t over complicate it, just start with the basics. Be prepared and able to answer the following:
1. What individuals did my business issue payments to in 2019? (employee, contractor)
2. If contractor, what type of services did they provide to my business?
If you paid employees in 2019, then you will run a year to date payroll summary to find the answer to question one. For contractors run a year to date payment register report(s), such as a cash account register, to include checks, wires and any other form of payment. Although you still have some steps to complete, these reports give you names of individual(s) paid, how much and when they were paid. For contractors, a description of types of services may be easily identifiable by looking at expense coding, or it may be noted in transactions listed on your payment register report(s), or you may have to pull and review an actual invoice to determine this information. Please refer to IRS guide in resources below for details on determining what contractors need a Form 1099.
Now that you have the data needed to accurately compile amounts to report. Depending on quantity, decide what works best for your business, paper or electronic processing. For contractors, most accounting software packages offer a Form 1099 tool at a minimal cost to assist with the actual processing of forms and electronic filing, which honestly is the best way to go. It ensures accurate and timely delivery of forms and filing with appropriate agencies. Please note that the deadline for issuing both Forms W-2 and 1099 is January 31, 2020.
Of course, some businesses may have unique circumstances that require other specific steps, but now you have the basics of tackling year end form preparation for your business employees and contractors, or at least get started in right direction. In most cases, gathering the information discussed here is the hardest part and having to continuously follow up with contractors for information creates delays beyond your control, possibly resulting in late filing and unnecessary penalties.
If you are having difficulties or feel overwhelmed with your business accounting, don’t stress, just give us a call, or send an email to firstname.lastname@example.org to request a free consultation.