2018 is bringing some significant changes to the income tax world; now is the time to be talking with your accountant about these changes and the impact they will have on your tax situation. One thing not impacted is the requirement to file information returns, including Form 1099, Forms W-3 and W-2, and Forms 1095 and 1094.
A best practice in preparation for year-end is to review vendor and employee files. Every vendor file should include Form W-9 signed by the vendor verifying its address, taxpayer identification number, and federal tax classification. This form will help to determine whether the recipient is required to receive a 1099, as well as verifying the legal name, address and identification number. If the above information is reported incorrectly, a notice will be issued by the IRS. These forms should be updated at least every three years to allow for updates to addresses and ownership.
Form 1099-MISC is required to be issued to any non-employee you paid $600 or more during the year. The total to report on the form should be the cash payments made during the year. Payment types to consider include:
- Services performed in the course of trade or business, including subcontractors, independent contractors, or directors
- Prizes and awards
- Gross proceeds paid to attorneys
- Medical and health care payments
- Crop insurance proceeds
These forms, when reporting non-employee compensation (Box 7), are due to the recipients and to the IRS by January 31, 2019. All other payment types are due by February 28, 2019 if filing by paper and by April 1, 2019 if filing electronically. Penalties will be assessed for the failure to file correct information returns by the due dates and for the failure to furnish correct payee statements. A penalty may also be assessed if you are required to file more than 250 information returns and do not file them electronically.
Forms W-2 and W-3 and Forms 1094-C and 1095-C report employee related information. Be sure to update employee records for current and prior employees to confirm addresses are correct. Penalties exist for failure to file, failure to furnish, and intentional disregard of filing. These increase each year for inflation. Forms W-2 and W-3 are due to employees and to the Social Security Administration by January 31, 2019 regardless of whether filing on paper or electronically. Many of the state agencies have also moved their deadlines to this earlier date. Please check with your specific revenue departments to verify. Forms 1094-C and 1095-C are due to employees by January 31, 2019 and to the Internal Revenue Service by February 28, 2019, if filing on paper, and by March 31, 2019, if filing electronically.
Please note, if the number of information returns you are filing is greater than 250 for a specific type (W-2, 1099, 1095), you are required to file them electronically or penalties may be assessed.
A few other reminders to prepare for 2019:
- The social security wage base that is taxed at 6.2% will increase to $132,900 up from $128,400 for 2018.
- The annual maximum that can be contributed to 401(k) and 403(b) is increasing $500 to $19,000. The maximum catch-up contribution for participants age 50 or over remains unchanged at $6,000.
- The annual maximum that can be contributed to an IRA is increasing $500 to $6,000. The maximum catch-up contribution for participants age 50 or over remains unchanged at $1,000.
- The dollar limitation for contributions to §125 flexible health spending arrangements is $2,700.
Please contact your MarksNelson professional at 816-743-7700 if you have any questions or need assistance as you close out 2018.