The purpose of this letter is to outline some of the important reporting requirements for both 1099s and W-2s that impact most businesses.
1099 Requirements for 2020
Beginning in 2020, the IRS added a new 1099-NEC form to report the Nonemployee Compensation payments of $600 or more. The 1099-NEC form will be filed in replacement of the old 1099-MISC- Box 7. The creation of the 1099-NEC has led to the revision of the 1099-MISC form as well, however the requirements for reporting certain income has not changed, see below:
The IRS requires that you file information returns (1099s) for cash and check payments made by your trade or business to individuals not treated as your employees. Non-incorporated partnerships and LLCs are also subject to this requirement. The payments include such things as:
Amount Requiring Reporting
Contract Labor, Commissions, Directors Fees and
Other services provided to your business $600 or more
Dividends, Interest and Royalties $10 or more
Professional Fees $600 or more
Rents (other than to real estate agents) $600 or more
Attorney’s Fees for legal services $600 or more
Payments to attorneys for settlements ALL
At this time, payments to corporations are exempt with the exception of legal services. There are other payments which may also require a 1099 to be issued, such as gambling winnings, fishing income, and others.
As in prior years, the 1099-K form will be issued for all merchant and third-party network payments. This form will report all payments made to businesses via credit card processors. The merchant and third-party companies are responsible for preparing 1099-Ks; therefore, any items a business pays through a credit card should not be included in the amounts compiled for 1099-MISC forms.
Baldwin CPAs is a partnership for income tax purposes and thus all clients who pay our firm $600 or over are required to prepare a 1099 for our professional services. Our federal EIN is 20-1416603. Keep in mind per above information, if our invoices were paid via credit card, a 1099 is not required.
Baldwin CPAs would be happy to prepare or assist you in the preparation of your 1099s. To ensure accurate preparation, please forward the name, address, social security or federal identification number, amount and type of compensation (rent, dividends, commissions, etc), and phone number for all recipients. The deadline for submission to the IRS of 1099 forms for 2020 is February 1, 2021. In order to comply with the IRS deadline, please provide necessary information to our offices by January 15, 2021.
Affordable Care Act Requirements for group health insurance
For 2020, employers who have 50 or more full time employees are required to submit Form 1095-C to their employees on or before March 2, 2021 along with a copy to the Internal Revenue Service by March 1, 2021. Be sure to check with your Third Party Administrator to see if they will be handling the additional filing requirements which are required by The Affordable Care Act. Please call us if you have any questions regarding this reporting requirement or need assistance in the completion of Form 1095-C.
Certain W-2 Requirements
You should also be aware of what must be included on your employees W-2s for 2020.
On 2020 forms W-2, employers who filed at least 250 W-2s for 2020 must continue to report the aggregate (employer and employee paid) cost of employer-sponsored health insurance coverage on Form W-2 in box 12, using code DD. Employers filing less than 250 W-2 forms for 2020, have the option of including this information on their W-2 forms.
Recipient copies of 1099s and W-2s should be distributed on or before February 1, 2021. Forms 1099 and W-2 along with their respective transmittal forms must also be submitted to the Internal Revenue Service or Social Security Security Administration by February 1, 2021. If you have over 250 information returns, you must file all federal forms electronically. Kentucky requires electronic filing on all returns over 100 forms.
Penalties will apply for failure to file W-2 and 1099 forms by the due dates. Due to the early due date of February 1, 2021, it is extremely important to provide the information to Baldwin CPAs as early as possible. Applicable penalties will be based on when the W-2 and 1099 forms are actually filed. The penalties for failure to file timely on forms W-2 and 1099 starts at $50 per 1099 and W-2. This penalty amount increases the later the returns are filed. Also, improper filing of information returns can result in other substantial penalties.
The IRS has backup withholding regulations that require you to deduct and withhold income tax at a 24% rate if the payee fails to furnish an identification number to you.
These are the most common rules and requirements for W-2 and 1099 forms. The laws and regulations which apply to these forms are very complex, and there are many situations to which unique requirements apply. The staff at Baldwin CPAs will be happy to assist your business comply with the filing requirements.
Baldwin CPAs, PLLC
TO COMPLY WITH U.S. TREASURY REGULATIONS, WE ARE REQUIRED TO INFORM YOU THAT ANY TAX ADVICE CONTAINED IN THIS MESSAGE OR IN ANY ATTACHMENT IS NOT INTENDED TO BE RELIED UPON AND CANNOT BE RELIED UPON, TO AVOID PENALTIES UNDER THE INTERNAL REVENUE CODE