COVID-19 and the CARES Act have caused a wave of change in 2020. In the bookkeeping world, celebrating the end of a year also means ramping up for W-2 and 1099 season. “Happy New Year!”
After third-quarter deadlines are met, work slows down. At ATKG, the CAS Team utilizes this downtime to clean-up vendor, customer, and employee files. We concentrate on missing information such as address changes, missing W-9’s, and change of withholding status (marriage, divorce, children, etc.) for employees.
Form W-2, Copy A is used to report employee wages to the Social Security Administration (SSA). It is filed with Form W-3, which serves as a transmittal summary of the W-2s being submitted. The deadline to submit W-2s and W-3 to the SSA is January 31, 2021. Employees must receive their copy of Form W-2 by January 31, as well.
Form W-2, Copies B, and C provide information to an employee regarding their compensation for the calendar year. It contains amounts for wages, withholding, and elective deferrals. This information is necessary when preparing their personal Form 1040.
Utilizing automated payroll software is beneficial for compiling information regarding employee compensation. However, it is always best practice to double-check all wage, withholding, and elective deferral figures for accuracy.
All boxes on Form W-2 and the information they contain are important. The most used are Boxes 1 – 6. Below is a brief description of the information included in these boxes:
For detailed instructions on Form W-2 & Form W-3, see the IRS website: https://www.irs.gov/pub/irs-pdf/iw2w3.pdf.
Form 1099 is provided to vendors and reports payments made by the issuer for services received during the calendar year. This year the IRS has brought back a form from the ’70s called the 1099-NEC (Non-Employee Compensation). This form will be used in place of Box 7 on the 1099-MISC. The deadline to submit 1099-MISC and Form 1096, which serves as the cover sheet of all 1099s submitted to the IRS, is January 31, 2021. When you submit 1099’s, 1096 should accompany each set of forms. Recipients must receive their copy of Form 1099 by January 31, 2021, as well.
Form 1099 contains basic information, such as the issuer’s name, address, and EIN or SSN (if it is an individual), as well as the recipient’s name, address, and EIN/SSN. The best practice for collecting the recipient’s information is to request a Form W-9 before making any payments. This will ensure you have all information necessary to complete an accurate 1099-MISC.
Form 1099-MISC must be completed for each individual or company paid during the calendar year while conducting your trade or business. These amounts include:
Generally, payments made to corporations do not have to be reported on Form 1099-MISC. The exceptions to this rule are:
For detailed instructions on Form 1099-MISC, see the IRS website: https://www.irs.gov/pub/irs-pdf/i1099msc.pdf.
This brief overview is designed to assist you in preparing and managing your 2020 W-2 and 1099 business preparation. For questions unique to your accounting situation, feel free to reach out to a member of ATKG’s Client Accounting Services team.