Tax season is here: What small businesses need to know about the W-2s and 1099s
As businesses prepare to meet their February 1, 2021 deadlines, it’s time to revisit the IRS requirements and develop a plan. As a small business, the best way to stay tax compliant is to be educated and choose the best reporting method.
Explanation of Form W-2
Anyone who has spent time in the workforce knows a thing or two about the W-2 form. On the employer’s side, Form W-2 is a report on employee wages and taxes withheld from employee paychecks.
Employers file these forms with the Social Security Administration (SSA) and provide a copy to their employees. Employees use their copy for income taxes. Even if your company has only one employee on the payroll, you will need to file form W-2 for the 2020 tax year.
When are the W-2s due?
The deadline for Form W-2 is usually January 31. When that date falls on a weekend, the IRS pushes it back. This year, employers have until February 1, 2021 to file Form W-2 for the 2020 tax year. Businesses must also send a copy to their employees by the February 1, 2021 deadline.
Form 1099-MISC explained
As the name of the form suggests, Form 1099-MISC is used to report miscellaneous payments. The IRS recently updated this form so that it can no longer be used to report compensation for non-employees. For payments to non-employees, employers can file Form 1099-NEC, but we’ll get to that later.
Even though reporting non-employee compensation is no longer an option on the 1099-MISC form, there are still plenty of payments your business must report for the 2020 tax year. The IRS Form 1099- MISC provides a report on:
- Royalties or brokerage payments in lieu of dividends in excess of $ 10
- Rewards or prizes
- Medical and healthcare payments
- The fishing boat proceeds
- Payments made to lawyers
- Crop insurance proceeds
If any of these payments ring a bell, it’s time to file Form 1099-MISC for the 2020 tax year.
When is Form 1099-MISC due?
Form 1099-MISC has a few different due dates, depending on your filing method. If you are filing Form 1099-MISC on paper, your deadline is March 1, 2021. If you are filing online, you have until March 31, 2021. For both options, all recipient copies must be sent no later than late February 1, 2021.
Explanation of Form 1099-NEC
If your business has done renovations, hired a job, or had another service performed, you may need to Form 1099-NEC file. Form 1099-NEC is a requirement for employers who paid an independent contractor or non-employee more than $ 600 in the 2020 tax year.
In addition to completing Form 1099-NEC, employers must send a copy of their return to their recipient by the IRS deadline. Non-employees or independent contractors that you paid $ 600 or more are beneficiaries.
When is Form 1099-NEC due?
Form 1099-NEC is due February 1, 2021. To meet this deadline, file Form 1099-NEC with the IRS and provide copies to non-employees by February 1.
Simplify meeting your IRS deadlines
Now that you have a little more information about your IRS requirements and due dates, it’s time to determine your filing method. The IRS recommends electronic filing. Electronic filing is a great option for small businesses because it’s fast, secure, and efficient.
Electronic filing lends itself to faster IRS processing, which means less wait time for your business. Electronic filing is also faster because it avoids the delays associated with mailings, such as mailing times and trips to the post office.
Tax software can help your business
More than ever, smart employers are harnessing technology to achieve big results while running a small business. Working with an e-filer is a great option, allowing businesses to make their filing process quick, secure and efficient. Small businesses can bring ease and expertise to their taxes while doing it themselves.
When you select the best ranking solution for your business, it is important to exercise good judgment. Here are some things to watch out for. Pay attention to the price, whether the tax solution offers assistance and, most importantly, whether or not they are authorized by the IRS. Some electronic file providers charge higher prices without providing all the features that can really simplify tax season.
Completing the forms correctly, without errors or typos, is an important part of avoiding IRS penalties. If you choose an electronic file provider that offers internal audits or error checks, you reduce the risk of last-minute errors.
Choosing an IRS-approved electronic file provider is an important part of avoiding scams. An IRS stamp of approval ensures that your forms will be submitted securely and in the correct format.
Meeting all of your deadlines this tax season is the best way to stay healthy as a small business. Remember to file the W-2, 1099-NEC and 1099-MISC forms before February 1, 2021.
Author – Gabrielle Girard | Marketing
Gabrielle Girard is a content writer for ExpressEfile, a SPAN Enterprises product offering easy and convenient electronic filing at the lowest price in the industry. Employers can visit ExpressEfile.com to meet their IRS and SSA requirements for the February 1, 2021 deadline and get all the support they need.