It’s a New Year and if you’re like many busy small business owners, you’re hard at work after the holiday festivities. However, don’t get too excited about new plans quite yet! Because the 2015 tax reporting deadline for business owners is fast approaching. Are your W-2’s and Form 1099’s all set and prepared to be submitted? Here are some ways to be well prepared come federal & state tax time and to avoid unnecessary penalties.
When is the deadline?
This year, the statutory filing date of January 31, 2016 falls on a weekend and businesses have until Monday, February 1, 2016 to send W-2’s and Form 1099’s out to employees and independent contractors. These forms also need to be sent to the IRS by February 29, 2016 (March 31, 2016 if electronically filed).
What is a W-2?
The W-2 Wage and Tax Statement is used to report an employee’s wages and taxes withheld for the year. As an employer, you must keep a copy of the W-2 for your own records as well as sending other copies to the employee, the Social Security Administration, the IRS, and state and local governments that require tax withholdings.
What is Form 1099?
Form 1099 is used to report amounts paid to independent contractors. If you hired outside contractors this past year for any services valued over $600, you must send the contractor and the IRS a form reporting your payments.
What if you don’t issue a W-2 and/or Form 1099 by the deadline?
It’s important that you issue a W-2 and/or Form 1099 by the deadline (February 1, 2016). If not, your employees can contact the IRS for assistance, and the IRS can issue penalties against your business (up to $500,000) if you fail to comply with IRS regulations.
The same applies for reporting company payments to freelance and contract workers sent on Form 1099. The IRS is beginning to look closely at the filing of Forms 1099 more and more each year. The IRS website has more information on penalties for failure to comply with these requirements.
For example, if you fail to file a correct information return by the due date and you cannot show reasonable cause, you may be subject to a penalty. This penalty applies if you fail to file timely, you fail to include all information required to be shown on a return, or you include incorrect information on a return.
What if I have questions about tax reporting and classifying employees?
The employee v. independent contractor debate can get tricky, and employers who unintentionally misclassify workers may run the risk of significant penalties and interest. If you have more questions about this process, including how to classify your employee, be sure to consult a tax attorney. You can also ask a lawyer a specific tax question at Rocket Lawyer.
In the end, a good rule of thumb is that businesses need to supply workers with W2’s and Form 1099’s so be sure you have those forms completed sooner rather than later.