Explaining Year-End Tax Forms and Reporting Requirements

Explaining Year-End Tax Forms and Reporting Requirements

Paychecks and taxes go hand in hand, but for small or mid-sized businesses, navigating the latest tax reporting changes and avoiding filing errors is not always straightforward.

Now is the time to start thinking about recent tax changes and how they affect your business. Even for the most organized among us, keeping the mountains of tax details straight is a tough and trying task, taking the focus off of the daily necessities of running a business.

Greatland Corporation, a company that provides W-2 and 1099 tax 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 to file 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.  

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 February 1, 2016. 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.

For better clarity, a 1099-MISC is the form individuals 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 that 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.

This year, the Affordable Care Act, or Obamacare, requires many employers to offer health insurance coverage to full-time employees and their dependents. The Internal Revenue Service 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 employees, even for full-time employees who declined to participate in their employer’s health plan. Read more on CPA Practice Advisor.