The Internal Revenue Service (IRS) reminded businesses about the upcoming deadline for filing documents related to employee and contractor payments, asking them to submit necessary documents before the end of this month.
“The IRS reminds employers that Jan. 31 is the deadline for submitting wage statements and forms for independent contractors with the government,” the agency said in a Jan. 9 press release. “Employers must file their copies of Form W-2, Wage and Tax Statement, and Form W-3, Transmittal of Wage and Tax Statements, with the Social Security Administration by Jan. 31.” Form W-2 reports annual wages of employees and the amount of taxes withheld from their paychecks. Form W-3 is used by employers to report the combined employee income.
“The Jan. 31 deadline also applies to Forms 1099-MISC, Miscellaneous Income, and Forms 1099-NEC, Nonemployee Compensation, that are filed with the IRS to report non-employee compensation to independent contractors.”
Form 1099-MISC is filed by businesses when they pay at least $600 in a specific year for expenses like rents, medical and healthcare payments, prizes and awards, and cash paid from a notional principal contract to an individual, partnership, or estate.
Form 1099-NEC is filed when businesses pay at least $600 for services rendered by an individual who is not their employee and for payments to an attorney.
The IRS pointed out that it is offering a free electronic-filing service for Form 1099 series that can be filed through the Information Returns Intake System (IRIS).
A business can use IRIS to e-file up to 100 returns at a time. “Filers can also use this online portal to prepare payee copies for distribution, file corrections, and request automatic extensions.”
The tax agency noted that businesses that file 10 forms or more per tax year should submit their returns electronically. Final regulations related to this requirement were issued by the IRS in February.
The rules affect filers of partnership returns, corporate income tax returns, unrelated business income tax returns, withholding tax returns, certain information returns, registration statements, disclosure statements, notifications, actuarial reports, and certain excise tax returns.
The agency justified this requirement by citing the high volume of paper returns it received annually. “The IRS receives nearly 4 billion information returns per year and expects to receive nearly 5 billion by 2028. In 2019, the IRS still received nearly 40 million paper information returns, even though approximately 99 percent of all information returns for that year were e-filed.”
“In 2021, about 82 percent of all corporate income tax returns were e-filed, and almost 90 percent of partnership tax returns were e-filed. Further reducing the volume of paper returns filed frees up staff and resources to further enhance services for taxpayers and improves overall efficiencies while reducing postage, printing, shipping and storage, and their associated costs and burdens.”
Points to Keep in Mind Before Filing
With the deadline for filing wage statements fast approaching, business owners need to be mindful of certain things. First, if they intend to request a tax-filing extension, this must be done by Jan. 31. Employers can request a 30-day extension by submitting Form 8809, Application for Extension of Time to File Information Returns.However, filing Form 8809 will not extend the due date for furnishing wage statements to employees. For this, a separate extension should be sought.
Failure to file on time can result in penalties. For each information return or payee statement that a business fails to pay on time, the IRS will charge $60 if the delay is up to 30 days. For late filings from 31 days until Aug. 1, a penalty of $120 will be charged.
If the delay exceeds Aug. 1 or the forms are not filed, a penalty of $310 will be imposed. In case the IRS judges that a business intentionally disregarded filing a form, it will charge $630 in penalty.
“The maximum penalty is different for small businesses and large businesses, including government entities. There is no maximum penalty for intentional disregard,” the IRS said.
However, “we may be able to remove or reduce the penalty if you acted in good faith and can show reasonable cause. If you have reasonable cause, and received Notice 972CG, respond within 45 days (60 days if you’re a foreign filer) before we assess the penalty.”
The IRS reminded businesses that Form 1099-K’s $600 reporting threshold has been delayed. The 1099-K form applies to people engaged in activities like gig work and casual sales who make side or extra income via selling their services or goods.
Starting this year, a new IRS rule required that third-party payment networks like PayPal, Venmo, Amazon, and Square issue Form 1099-K when a user receives more than $600 in gross sales from goods and services transactions in a single year. Earlier, the threshold of gross sales was over $20,000.
The policy to reduce the gross sales threshold from $20,000 to $600 was included in the American Rescue Plan Act of 2021. The rule was initially supposed to come into effect during tax year 2022. However, the IRS postponed it to the 2023 tax year.
“This means that for 2023 and prior years, payments apps and online marketplaces are only required to send out Forms 1099-K to taxpayers who receive over $20,000 and have over 200 transactions. For tax year 2024, the IRS plans for a threshold of $5,000 to phase in reporting requirements,” the agency stated.
