Changes in W-2 Reporting and Reminders for 1099 Reporting for Tax Year 2021

Tuesday, December 21, 2021 – The new Taxpayer First Act includes a mandate for electronic filing of IRS forms which include W-2s.  In 2022 if you file 100 or more W-2s, you must file them electronically.  In 2023, that limit is lowered to 10, though the IRS has not yet issued final regulations. 

If you deferred Social Security tax in 2020 and collected this tax from your employees in 2021, you will need to file W-2cs for the affected employees for 2020.  You can contact our office for assistance if this applies to you.

Last year, the IRS issued a new form for reporting nonemployee compensation: Form 1099 NEC.  Nonemployee compensation payments were previously reported in Box 7 of Form 1099-MISC.

Nonemployee compensation payments are payments totaling $600* or more in the calendar year in connection with a trade or business for the following:

• Services performed by someone who is not your employee
• Payments to an attorney for attorneys’ fees

Form 1099-NEC is not issued to a corporation – except when payments are for attorney services and cash payments for fish for resale.

The deadline for issuing Form 1099-NEC to recipients and filing with the IRS is January 31 of the following tax year.  There is no automatic 30-day extension for filing the Form 1099-NEC.

All other payments that were reported previously on Form 1099-MISC will continue to be reported on this form.  Those payments include, but are not limited to:  rents, royalties, prizes and awards and other income.  Some businesses or non-profits will have to file both the 1099-NEC for nonemployee compensation and the 1099-MISC for other payments they made during the year. 

The filing deadline for submitting Form 1099-MISC to recipients remains January 31, with the copy to the IRS by February 28 of the following tax year.

Reminder:  Form W-9 (Request for Taxpayer Identification Number and Certification) is your best tool to gather Form 1099 recipient information.  Ideally, request a completed Form W-9 prior to any financial transactions with a vendor.  Doing so will motivate the recipient to provide the requisite information in a timely manner. 

LSWG’s Client Accounting Services Department is keeping up-to-date on this issue and offers the following pointers to help filers prepare:

• Employers should verify employee’s – and independent contractors’ information – if applicable.  This includes names, addresses, and Social Security or individual taxpayer identification numbers.
• Employers should also ensure their company’s account information is current and active with the Social Security Administration before January.  If paper Forms W-2 are needed they should be ordered early.
• E-filing is the quickest, most accurate and convenient way to file these forms.

Automatic extensions of time to file Forms W-2 are not available.  Failure to file a correct information return by January 31, 2022 will subject you to some serious penalties.  The IRS will only grant extensions for very specific reasons.  Details can be found in the instructions for Form 8809 (Application for Time to File Information Returns).

LSWG is urging our clients to provide W-2 and 1099 information to us electronically via our client portal no later than January 15, 2022, to keep their reporting on track.  If you have any questions about this issue – or any other accounting or tax issue – give our office a call at 301.662.9200.

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*If you performed backup withholding, the $600 reporting minimum does not apply.