Navigating the latest tax reporting changes and avoiding filing errors is not always straightforward and can present unique challenges to small and midsized businesses.
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Greatland Corporation—a company that provides W-2, 1099, and 1095 forms and e-filing services to small businesses—is helping answer two of the most basic, but also most critical, questions during this time of year: “Who needs a 1099 or W-2?” and “What is required under the Affordable Care Act?”
In short, 1099s and W-2s are two different tax forms used for two types of workers. Independent contractors receive 1099 forms and traditional employees will receive a W-2 every year. It can often be difficult to classify workers, and costly if you make a mistake.
W-2 vs. 1099
A W-2 is the form employers will use to report yearly wage and withholding information. An employer needs to provide this form to employees no later than January 31, 2017. Employees will receive up to four copies of this form to report federal, state, and local income and maintain a copy for their own records.
By definition, an employee is anyone who performs services for an employer and the employer can control what will be done and how it will be done. This is true even when an employer gives an employee freedom of action.
A 1099-MISC is the form businesses use to report miscellaneous income, such as income earned as a contract or freelance worker, as well as fees, royalties, commissions, and rental income. If you are an employer who uses contractors or freelance workers whom you paid at least $600 during the year, you must provide them with a 1099-MISC form to report this income.
An individual is considered an independent contractor if the payer has the right to control or direct only the result of the work and not how it will be done. An employer generally does not withhold federal income tax or Social Security/Medicare taxes for independent contractors.
Beginning in 2017, for the 2016 reporting year, filers must send W-2 and 1099-MISC recipient copies and submit to the Social Security Administration/Internal Revenue Service by January 31, regardless of method (paper or e-file). In many cases, this is months earlier, increasing workload and stress for filers.
To further complicate matters, the new filing deadline, as it relates to Form 1099-MISC, only impacts filers reporting nonemployee compensation payments in box 7. Although the overwhelming majority of 1099-MISC filers will report information in box 7, there is bound to be some confusion.
ACA Reporting Requirements
In its second year of mandatory reporting, the Affordable Care Act (ACA) requires many employers to offer health insurance coverage to full-time employees and their dependents or risk paying a penalty.
The IRS developed Form 1095 for employers to report the offer of that coverage to employees and to the IRS. If a company has at least 50 full-time employees or FTEs (full-time equivalents), they must file a 1095 on behalf of their full-time employees, even for employees who declined to participate in their employer’s health plan.
Employers and insurers are again expected to comply with all ACA reporting regulations for 2016, making it imperative that businesses understand the filing requirements. In 2015, the IRS initiated ACA reporting with a “good-faith effort” guideline for filers and did not aggressively penalize missteps.
The “good-faith effort” leniency has been extended for the 2016 reporting season. However, businesses should still do all they can to accurately complete their forms and file all documents on time in order to avoid penalties.
Additionally, the IRS has extended the due date to March 2, 2017 for employers and issuers to provide individuals with recipient copies of Forms 1095-B and 1095-C. The deadlines for filing these forms to the IRS are as follows:
- February 28, 2017 for paper 1095 forms
- March 31, 2017 to e-file 1095 forms
It is important to note that all self-insured employers, regardless of size, must report healthcare coverage information to employees and the IRS. Full-time employees are defined as those who worked an average of at least 30 hours per week or 130 service hours in a calendar month.
Using this guideline, businesses may discover that they have less than 50 full-time employees, yet still meet the requirements for ACA reporting. Healthcare.gov can act as a helpful resource and has tools such as a full-time equivalent employee calculator to help determine your filing status.
Gathering information necessary to complete Form 1095 presents a unique challenge to companies since the form requires data typically stored in the employer’s payroll system as well as Health Insurance Portability and Accountability Act (HIPAA)-protected benefits information that is most often included in the employer’s Human Resources software. Businesses can expect additional workload this year in correctly combining this information from two very different regulated databases and importing the data into the 1095 form.
“The Affordable Care Act has presented a range of challenges to businesses, due to the heavy workload and regulations necessary to get and stay compliant,” said Janice Krueger of Greatland, in a press release. “Although the good-faith effort has been extended and incorrect filings will not be penalized for calendar year 2016 filing (reported in 2017), employers and insurers are still required to file on time. We always recommend that businesses prepare and gather necessary information as soon as possible in order to remain compliant under the Affordable Care Act.”
You can find additional filing resources at Greatland’s website.
I need the W-2 to file my taxes .What the website for me to get them
Thanks for the question Kimberly. It is your employer’s responsibility to get your W2’s to you. Each employer has their own way, either through mailing, emailing, time clock software, or something like that. Here is the IRS’s guidance on W2’s for your reference.
“Every employer engaged in a trade or business who pays remuneration, including noncash payments of $600 or more for the year (all amounts if any income, social security, or Medicare tax was withheld) for services performed by an employee must file a Form W-2 for each employee (even if the employee is related to the employer) from whom:
Income, social security, or Medicare tax was withheld.
Income tax would have been withheld if the employee had claimed no more than one withholding allowance or had not claimed exemption from withholding on Form W-4, Employee’s Withholding Allowance Certificate.” – http://www.irs.gov