Title:            New Filing Rules for 1099s and W-2s

Subtitle:       Penalties!

Form W-2 and Form 1099-MISC.

When a business pays nonemployee compensation aggregating to $600 or more to certain single payees in the tax year, the business must file an information return using Form 1099-MISC (Miscellaneous Income) to report the payments. Similarly, employers must report wages paid to employees on Form W-2 (Wage and Tax Statement).

There are new filing deadlines!

Old Rules

Before the PATH Act, these forms were required to be supplied to payees and employees by January 31 of the following year, and copies were required to be filed with the IRS and the Social Security Administration (SSA) by the last day of February, or by March 31 if filed electronically.

New Rules

The PATH Act accelerated the due dates for filings with the IRS and the SSA. Starting with returns relating to calendar-year 2016 (which will be filed in 2017), the due date for IRS and SSA filings has moved up to January 31 of the following year, and the later March 31 due date for electronic filings is no longer available. (See IRC Secs. 6071 and 6402.) So, 2016 Form 1099-MISC and Form W-2 will need to be filed 1/31/17—the same date that the forms must be provided to payees and employees.

Penalties

It is important to make sure you are aware of and comply with these new filing dates.

Failure to do so can result in significant penalties.

Penalty amounts are based on the duration of the delinquency, whether the delinquency was intentional, and the size of the offending taxpayer. However, for 2016, penalties begin at $50 per return, with a maximum of $532,000 per year or $186,000 for small employers, when the delinquency is corrected within 30 days after the information return due date and they go up from there. A small business is one with average annual gross receipts for the most recent three tax years that don’t exceed $5 million. (See IRC Sec. 6721 and Rev. Proc. 2015-53.)

A new IRS tactic!

In recent years, not only with the IRS, but with ICE, DOL and others, the government is increasingly relying on “penalties” as federal revenue sources.

Penalties are no longer merely tools to encourage compliance, they represent significant new sources of federal revenues – i.e., taxes by whatever name.

What does this mean?

The Obama Administration sent a clear message to the IRS to be less forgiving in granting penalty waivers.  Heretofore, the IRS would, on occasion, be generous in waiving penalties once the compliance issues were resolved.  No more.

In the future, penalty waivers will be much more difficult to obtain.