Wrap-up 2020: A year-end guide to W-2 and 1099 paperwork for business owners.

Are you ready for 2021? (Who isn’t?!) But first, business owners have some important tax-related tasks to complete. To help you officially wrap  up 2020, here’s a helpful guide to the W-2s and 1099 paperwork that needs to get done.

 

W-2s

What: Employers are required to provide W-2 forms to employees showing their total wages and deductions for 2020. W-2s must also be filed with the Social Security Administration.

Who: A W-2 form is required for all employees you paid wages to in 2020, regardless of how much money they earned. Generally, this means that Social Security or Medicare taxes were withheld from these wages, but you also must file a W-2 if you would have withheld these taxes if the employee had not claimed exemption from withholding on his W-4 form.

When: The deadline for sending W-2s to employees and filing with the Social Security Administration is January 31. (In 2021, you get an extra day – February 1 – because January 31 falls on a Sunday.)

Helpful tips:

  • Review employee information and paperwork before preparing W-2s.
    • Ensure that you have W-4 and I-9 forms for each employee
    • Verify Social Security numbers
    • Make sure you have current employee mailing addresses
  • Provide W-2s to employees ahead of the January 31 deadline, so you have a chance to identify and correct any errors.
  • Leverage your payroll software or payroll provider to prepare and send out W-2s. McCoy Accounting Advisors can help by preparing your W-2s in January. We also provide payroll services year-round, including reporting and paying withholding taxes to reporting agencies on your behalf.

End of Year Guide for Business Owners

1099-NEC forms

What: A 1099-NEC form reports the income you have paid to independent contractors for services they provided in 2020. The form is required when the total payments to an independent contractor are $600 or more during the year.  Along with filing 1099-NECs with the IRS, you also need to send a copy to the independent contractor.

Note: Make sure you’re using the correct form. The 1099-NEC form is new for tax year 2020. (Previously, the 1099-MISC form was used for independent contractors.)

Who: The “NEC” in the form name stands for non-employee compensation. Independent contractors include freelancers, self-employed or sole proprietors, and partnerships that provide services to your business but are not employees. Independent contractors are responsible for calculating their own payroll taxes and filing quarterly tax payments with the IRS. (If the business you are paying is a corporation, you don’t need to file a 1099-NEC form.)

When: The deadline for providing 2020 1099-NEC forms to independent contractors and filing them with the IRS is February 1, 2021.  (The deadline is typically January 31, but since that’s a Sunday in 2021, you have until Monday, February 1.)

Helpful tips:

  • As you engage independent contractors, ask them to fill in a W-9 form. The W-9 form provides their legal name or business name, the type of business entity (sole proprietor, partnership, or corporation), taxpayer identification number (SSN, ITIN, or EIN), and current address – all of which make preparing the 1099-NEC easier.
  • FYI: The 1099-MISC form should be used if your business paid an individual or LLC $600 or more in “miscellaneous income,” such as rent, legal settlements, or prize or award winnings. For 1099-MISC forms, the deadline is March 1 if you’re filing by paper and March 31 if you’re filing electronically.
  • McCoy Accounting Advisors can help with your 1099 form preparation in January. Plus, consider our payroll services, which include managing and paying 1099-NEC contractors year-round.

We know tax paperwork can be confusing – and taxing! McCoy Accounting Advisors is here to help you sort out the what, when, and who to ensure you’re filing the right forms at the right time. Contact us today to schedule a complimentary consultation.

 

End of Year Guide for Business Owners

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