The following half-truths about Form W-2 and its close cousin Form 1099 all come from client questions that we’ve fielded during January of this year.
Don’t be fooled by what you hear about the requirements; check with us to be sure.
Half-Truth: All employers offering coverage under an employer-sponsored group health plan must report the cost of the coverage on the employee’s W-2.
Full-Truth: Until the IRS issues final guidance for this W-2 reporting requirement, reporting is not mandatory for those employers who filed less than 250 W-2s.
Half-Truth: In order to prevent identity theft, the taxpayer identification number (TIN) can be shortened (ex: XXX-XX-1234) on Form W-2.
Full-Truth: TIN truncation applies to any federal tax-related payee statement unless prohibited by the Internal Revenue Code, regulations, or guidance. TIN truncation is prohibited on Form W-2, but is acceptable on payee statements for Form 1098 series, Form 1099 series, and Form 5498 series. TINs that may be truncated include social security numbers (SSNs), individual taxpayer identification numbers (ITINs), adoption taxpayer identification numbers (ATINs), and employer identification numbers (EINs).
Half-Truth: If an employer gives a worker freedom to act, the worker should be classified as an independent contractor.
Full-Truth: The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. An individual is an employee if the employer can control what will be done and how it will be done even if the employer gives the employee freedom of action.
Half-Truth: Using the combined federal/state 1099 filing program meets all the state’s 1099 filing requirements.
Full-Truth: Not all states participate in the combined federal/state program, and many states that do participate in the program still require 1099s, with state withholding to be sent directly to the state.
Half-Truth: The e-file threshold for state W-2/1099 filing is the same as the federal e-file threshold.
Full-Truth: Each state can set its own e-file threshold. Check your state’s requirements to ensure that you are in compliance.
Half-Truth: When filing on paper, one Form 1096 can be used for one submission of multiple 1099 form types.
Full-Truth: A separate Form 1096 is required for each 1099 form type being submitted to IRS on paper. (Example: If filing both 1099-INT and 1099-DIV forms, two 1096 forms would be required.)
Half-Truth: When filing W-2s and 1099s on paper, a filer is required to use the official forms supplied by the IRS.
Full-Truth: Substitute W-2 and 1099 forms are acceptable for filing as long as they meet the specifications outlined in IRS Publications 1141 and 1179 respectively.
Half-Truth: Payments made to corporations are not reportable on Form 1099-MISC.
Full-Truth: Generally, payments made to corporations are not reportable on Form 1099-MISC; however, there are exceptions. The following payments made to corporations must be reported on Form 1099-MISC:
• Medical and health care payments
• Fish purchases for cash (companies in the business of fish sales)
• Attorneys’ fees
• Gross proceeds paid to an attorney
• Substitute payments in lieu of dividends or tax-exempt interest
• Payments by a federal executive agency for services
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