Forms, forms and more forms

There are many forms to remember as part of owning a business. There are forms to document employee wages, forms for contractors, forms for donated vehicles, forms for acquisitions … the list goes on and on.

Understanding what each form is, and which ones you need to fill out, is an important aspect of your business. Today we’re breaking down some of the most common information return forms and what gets reported on them.

First we’ll start with a definition. An information return is a tax document businesses use to let the IRS know about transactions. These forms are mandatory, meaning you don’t get a choice in filling them out and reporting your transactions to the IRS.

Now on to the forms …

 

Form W-2

The W-2 is also known as the wage and tax statement. It should be pretty familiar as it is used to document wages, tips and other compensation, Medicare, Social Security, income tax withholdings and more for each of your employees.

Every employer in a trade or business with employees who are compensated for their work needs to fill out the Form W-2 for them. If income, social security or Medicare tax was withheld, you get to fill out this form for your employees.

Deadline:

  • To recipient: January 31, for federal and most states
  • To IRS: January 31both e-file and paper copies

 

Form W-2G

Form W-2G is a specific form used for gambling winnings and losses. You will need to file a W-2G if you receive:

  • $600 or more in gambling winnings (if the payout is at least 300 times the amount of the wager)
  • $1,200 or more in winnings from bingo or slot machines
  • $1,500 or more from keno
  • More than $5,000 from a poker tournament

As a friendly reminder, all gambling winnings are subject to income tax.

Deadline:

  • To recipient: January 31
  • To IRS: February 28 or March 31 (if filing electronically)

 

Form 1099 Series

The Form 1099 series is a group of forms used to report ordinary kinds of payments, such as dividends, interest, retirement distributions and miscellaneous income payments.

Form 1099-MISC

Form 1099-MISC is filed by a business for payments made to nonemployees who do work for your business or trade. In other words, if they’re not an employee, but you’re paying them for a service, you have to report it on Form 1099-MISC.

Form 1099-MISC is required for each person you’ve made payments to based on the following criteria:

  • $10 or more in royalties or broker payments in lieu of dividends or tax-exempt interest
  • $600 or more in rents, services, prizes and awards, other income payments, medical and health care payments, crop insurance proceeds, cash payments for fish you purchase or cash paid from notional principal contract to an individual, partnership or estate
  • Any fish boat proceeds
  • Gross proceeds to an attorney
  • Direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment
  • Any backup withholding regardless of the amount

Deadline:

  • To recipient: January 31, for federal and most states
  • To IRS: February 28 or March 31 (if filing electronically) or January 31 (if any payments for nonemployee compensation are reported in box 7)

 

Form 1099-DIV

This form is used for dividends and distributions. Specifically it’s filed for each person for whom you’ve:

  • Paid dividends and other distributions on stock of $10 or more
  • Withheld or paid any foreign tax on dividends and other distributions of stock
  • Withheld any federal income tax under the backup withholding rules
  • Paid $600 or more as part of a liquidation

Deadline:

  • To recipient: January 31
  • To IRS: February 28 or March 31 (if filing electronically)

 

Form 1099-INT

The Interest Income form is used for reporting interest payments when:

  • Interest of $10 or more is paid or credited on earnings
  • Interest of $600 or more from other sources in the course of trade or business
  • Forfeited interest due to premature withdrawals of time deposits
  • Federal backup withholding and foreign tax withholding and paid on interest
  • Payments of any interest to bearers of certificates of deposit

This form is specifically for interest payments made in the course of your trade or business, including federal, state and local government agencies.

Deadline:

  • To recipient: January 31
  • To IRS: February 28 or March 31 (if filing electronically)

 

Form 1099-OID

Form 1099-OID is also known as the Original Issue Discount. It’s used when you purchase a bond for lesser price than the face value or principle amount. This discount is given instead of a bond earning interest. If you purchase a bond for less the face value, you should receive a Form 1099-OID, which is where you report $10 or more in gross income from that bond.

Deadline:

  • To recipient: January 31
  • To IRS: February 28 or March 31 (if filing electronically)

 

Form 1099-R

This form is used to report any distribution of $10 or more form pension sharing or retirement plans, any individual retirement arrangements, annuities, pensions, insurance contracts, etc. It’s also used to report death benefit payments made by you as the employer that are not part of a pension, profit-sharing or retirement plan.

The fun part about Form 1099-R is that there are nine numeric codes and 18 alpha codes to use when reporting amounts in box 7 of the form. For more information on these, and what to put in what box, check out our W2/1099 ebook.

Deadline:

  • To recipient: January 31
  • To IRS: February 28 or March 31 (if filing electronically)

 

Form 1099-PATR

This form is specific to cooperatives and must be filled out if $10 or more in distributions paid from the cooperative is passed through to their patrons. This includes any domestic production activities deduction and certain pass-through credits.

Deadline:

  • To recipient: January 31
  • To IRS: February 28 or March 31 (if filing electronically)

 

Form 1099-LTC

This form is used if you pay any long-term care benefits, including accelerated death benefits. Payers include insurance companies, governmental units and viatical settlement providers.

Deadline:

  • To recipient: January 31
  • To IRS: February 28 or March 31 (if filing electronically)

 

Form 1099-SA

Here we’re looking at reporting distributions made from an HSA, Archer MSA or Medicare Advantage MSA. Form 1099-SA can be used if the distribution is paid directly to a medical service provider or to the account holder. A separate return has to be filed for each plan type.

Deadline:

  • To recipient: January 31
  • To IRS: February 28 or March 31 (if filing electronically)

 

Form 1099-A

Also known as the Acquisition or Abandonment of Secured Property, Form 1099-A is used for each borrower you lend money to in connection with your trade or business. Specifically, this applies to the full or partial satisfaction of a debt.

Deadline:

  • To borrower: January 31
  • To IRS: February 28 or March 31 (if filing electronically)

 

Form 1099-C

Use this form for each debtor for whom debt of $600 or more was cancelled. Specifically, you must file Form 1099-C if:

  • You are a financial institution
  • A credit union
  • A corporation that is a subsidiary of a financial institution or credit union
  • A federal government agency
  • An organization whose significant trade or business is the lending of money

Deadline:

  • To recipient: January 31
  • To IRS: February 28 or March 31 (if filing electronically)

 

Form 1099-B

Form 1099-B is specifically for a broker or barter exchange. It must be filled out for each person for whom the broker:

  • Sold stocks, bonds commodities, regulated future contracts, foreign currency contracts, debt instruments, etc. for cash
  • Received cash, stock or other property from a corporation that the broker knows had stock acquired in an acquisition
  • Exchanged property or services through a barter exchange

Deadline:

  • To recipient: February 15
  • To IRS: February 28 or March 31 (if filing electronically)

 

Form 1099-K

This one is specific to a payment settlement entity (PSE) for payments made in settlement of reportable payment transactions within the calendar year.

Deadline:

  • To recipient: January 31
  • To IRS: February 28 or March 31 (if filing electronically)

 

Form 1099-Q

Form 1099-Q is used for payments from qualified education programs. Specifically, you must file this form if you’re an officer or employee having control of a program established by an eligible educational institution and have made a distribution from a qualified tuition program.

Deadline:

  • To recipient: January 31
  • To IRS: February 28 or March 31 (if filing electronically)

 

Form 1042-S

This form is used to report income subject to withholding paid to nonresident aliens, foreign partnerships, foreign corporations or nonresident alien or foreign fiduciaries of estates or trusts.

Deadline:

  • To recipient: March 15
  • To IRS: March 15

 

The moral of the story

This is a high level overview of just some of the information returns that exist. It’s important to understand what forms apply to your organization and what information to report on each form. To learn more, check out our W2/1099 year end planning book or contact your business advisor.

 

 

Tips for Form W-2

As tax season rolls around, it’s important to have all your information ready. Not only will you feel more organized, but you’ll be able to provide your employees with all the information they need to file their own personal taxes.

One of the key pieces you’ll need to have for each of your employees is Form W-2.

What is it?

It’s an information form used to report federal and state taxable wages, taxes withheld, and other fringe benefit information to your employees. Information on this form is used by both the taxpayer (that’s your employees) in preparing to file taxes and the IRS to match records to the taxpayer’s tax return.

Do all my employees get one of these?

An employer legally must send out W-2 forms to each of its employees to whom they pay a salary, wage or other form of compensation.

If you need a refresher on who is an employee, go here.

Form W-2 must be filled out if you did any of the following:

  • Withheld any income, Social Security or Medicare tax from wages. This is regardless of the amount of wages.
  • Paid $600 or more in wages, even if you did not withhold any income, Social Security or Medicare tax.
    • Before you get too excited, this only applies to certain classes of employees, such as election workers or foreign ag workers.
  • Would have had to withhold income tax if the employee had claimed no more than one withholding allowance or had not claimed exemptions from withholding on Form W-4.

What do I need to do on the forms?

Form W-2 is made up of multiple parts, all of which is necessary for the taxpayer and the IRS.

Box 1 – Wages, tips and other compensation

This box is for the total taxable wages, tips and other compensation you paid your employee during the course of the calendar year. It includes the following:

  • Total wages
  • Bonuses (including sign-on bonuses) and awards
  • Total noncash payments, including certain fringe benefits
  • Tips reported by the employee to the employer
  • Certain employee business expense reimbursements
  • The cost of accident and health insurance premiums paid on the behalf of a S corp 2% shareholder
  • Taxable benefits from a section 125 plan if the employee chooses cash
  • Employee contributions to an Archer MSA
  • Employer contributions to an Archer MSA (if includible in the income of the employee)
  • Employer contributions for qualified long-term care services (if the coverage is provided through a flexible spending or something similar)
  • Taxable cost of group-term life insurance above $50,000 (above $2,000 for dependents)
  • Payments for non-job related education expenses
  • Employee’s share of Social Security and Medicare taxes if you paid them on their behalf
  • Designated Roth contributions made under a section 401(k) plan, a section 403(b) salary reduction agreement, or a governmental section 457(b) plan.
  • Distributions to an employee or former employee from an NQDC plan (or a nongovernmental section 457(b) plan.
  • Amounts includible in income under section 457(f) because the amounts are no longer subject to a substantial risk of forfeiture.
  • Payments to statutory employees who are subject to social security and Medicare taxes but not subject to federal income tax withholding.
  • Cost of current insurance protection under a compensatory split-dollar life insurance arrangement.
  • Employee contributions to a health savings account (HSA).
  • Employer contributions to an HSA if includible in the income of the employee.
  • Amounts includible in income under an NQDC plan because of section 409A.
  • Payments made to former employees while they are on active duty in the Armed Forces or other uniformed services.
  • All other compensation, including certain scholarship and fellowship grants.

 

Box 2 – Federal income tax withheld

This one’s pretty self-explanatory. Here we’re talking all federal income tax withheld from an employee’s wages for the calendar year.

 

Box 3 – Social Security Wages

This is the total wages paid (before payroll deductions) that are subject to employee social security tax. This, however, does not include social security tips and allocated tips (you get to save that for Box 7).

Items subject to employee social security tax, and therefore should be included in Box 3 are:

  • Signing bonuses
  • Employee business expense reimbursements
  • Taxable cost of group-term life insurance over $50,000
  • Employee and non-excludable employer contributions to an MSA or HSA except those made through a cafeteria plan.
  • Employee contributions to a SIMPLE retirement account
  • Adoption benefits

As a note, the total of boxes 3 and 7 (Social Security Tips) can’t exceed $127,200, as this is the maximum social security wage base for 2017.

 

Box 4 – Social Security Tax Withheld

Here we’re looking for the total employee social security tax withheld, including social security tax on tips. As a reminder, only includes taxes withheld for 2017.

 

Box 5 – Medicare wages and tips

Similar to box 3, this is where you record the wages and tips that were subject to Medicare tax. Wages that are subject to this are the same as those listed in box 3. The only difference? There’s no wage base limit to Medicare tax.

 

Box 6 – Medicare tax withheld

Here’s where you put the total of the Medicare tax withheld for 2017, including any additional Medicare tax withheld (there is an additional Medicare tax of 0.9% on taxable wages that exceed $200,000 for an employee in a calendar year).

 

Box 7 – Social security tips

Separate from box 3, this is where you show the tips your employee reported to you. All tips need to be recorded here, even if you did not have enough employee funds to collect social security tax for the tips.

And remember, the maximum amount for boxes 3 and 7 (combined) cannot exceed $127,200.

But wait, there’s more …

  • Box 8 – Allocated tips: The tips allocated to your employees
  • Box 9 – Verification code: If you’re participating in the W-2 Verification Code Initiative, the verification code goes here.
  • Box 10 – Dependent care benefits: This is the box for total dependent care benefits paid or incurred by you for your employee. This includes fair market value of daycare provided by you.
  • Box 11 – Nonqualified plans: The purpose of this box is to determine if any of the amounts in boxes 1, 3 or 5 were earned in a prior year. The Social Security Administration uses this information to ensure they have paid the correct amount of social security earnings.
  • Box 12 – Codes: The purpose of this box is to report the amounts for various fringe benefits to the employee along with the code to denote what fringe benefit it pertains to. For instance, 401k contributions made by an employee would be reported with a code of D. The IRS has a list of all of the codes along with a description for each one in the General Instructions for Forms W-2 and W-3, which can be found on the IRS website.

 The moral of the story

These forms matter, as they’re used by your employees, the IRS, Social Security Administration, and the state and local government. It’s your legal responsibility as an employer to provide each of your employees with a W-2 that accurately reflects the above items.

Yes, these forms can be confusing and time consuming. But it’s important to ensure they’re done correctly. If you need help, ask your business advisor for guidance. Or, come see us. We’re here to help.

P.S. Learn more about Form W-2, and other forms needed for year-end planning, in our W2/1099 book.

 

 

Important Items When Hiring

Have you ever thought about hiring staff? You know, bringing in employees to work beside you in your business to keep it awesome and running smoothly? As a business owner, it’s likely the thought has at least crossed your mind. What you might not have thought about is the legalities that come along with hiring staff.

Before you hire staff, the Small Business Administration says you need to take care of some very important to-do items.

  1. Employer Identification Number (EIN) — To hire employees, you will need to get an Employer Identification Number (EIN) from the IRS by filing an application. This can be done on the IRS website. An EIN is the unique code the IRS uses to identify your company – similar to how your social security number identifies you.
  2. Forms W-2 and W-4 — Having employees means you will have to file taxes on their wages. You will need your employees to fill out W-4 forms when they are hired. You will also need to submit W-2 forms for employees to Social Security. Getting these records set up right away will make for smooth(er) sailing during tax season.
  3. Form I-9 — You also need to make sure the employees you’re hiring are legal to work in the United States. To do this, you as the employer will need to complete Form I-9 within three days of hiring someone. You may need to do an online verification during this step as well. This will depend on what state you are in and whether you are a Federal contractor or sub-contractor.
  4. Two Words: Worker’s Compensation — In the somewhat unlikely – but still very serious – event someone gets injured on the job, you typically need to pay worker’s compensation. Your business will need to have specific insurance to cover this, and this insurance needs to be in place as soon as you have employees. It’s better to be safe than sorry.
  5. Form 941 — More on taxes. Employers who pay wages are usually subject to other taxes, such as social security. Because of this, employers have to file Form 941, or the Employer’s Quarterly Federal Tax Return.
  6. New Hire Reporting — You will need to register with your state’s New Hire Reporting Program, which is essentially just a large directory of all employees. Employers must report newly hired or rehired workers within 20 days. What must be reported? Federal and state laws in North Dakota, for example, require you report the employee’s name, address, social security number, date of hire and whether or not health insurance is offered. These criteria can vary from state to state.
  7. Workplace Posters — Employers are required by law to display certain posters in the workplace. Such posters usually inform employees of their rights under labor laws. Some examples include the Equal Employment Opportunity poster, the Fair Labor Standards Act poster and the Family and Medical Leave Act poster. Most of these posters can be found online through the US Department of Labor’s website.

Hiring employees can be an exciting step for your business. Not only can they help your business succeed, but they may be a sign that business is good and you need more help to serve your customers.

If you have any questions about the hiring process, our HR consultants are here to help you take this step!

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