Next tax season may bring with it some added stress – and you thought that wasn’t possible -- for small business owners. Changes to W-2 and 1099 forms are on the horizon.
The National Federation of Independent Business held its Webinar, "The Changing W-2 and Webinar Environment: Understanding and Compliance," Wednesday to give small business owners a heads-up on the changes they need to be aware of regarding these important tax documents.
Kyle Janssens, senior brand manager at Greatland, helped to conduct the Webinar, and said there is already a lot of confusion surrounding the changes. At the same time there is increased pressure from the IRS and Congress to ensure entrepreneurs fully understand the changes.
What sparked the changes? Janssens said according to the IRS there is a $345 billion tax gap annually, $68 billion of which is estimated to come from sole proprietorships under-reporting.
"They feel there is under-reporting or misreporting," he said. "The IRS is hoping to remedy that by enforcing more compliance regulations and requiring more information to be reported."
Here are some of the upcoming changes for the W-2 form:
No. 1: Social Security tax withholding: The withholding amount is dropping from 6.2% to 4.2% for wage payments, Janssens said.
No. 2: Advanced income credit: This credit has been eliminated from the W-2 form and no longer has to be reported. There is also information related to wages and tips that is now obsolete, he said.
No. 3: Employee-sponsored health care: There is a new code for the cost of employee-sponsored healthcare, Janssens said, which changes what employers must report on their W-2 form this year.
Here are some of the upcoming changes for the 1099 form:
No. 1: The repeal: On April 14, part of the Patient Protection and Affordable Care Act was repealed, so small businesses no longer have to report goods purchased. This was a big area of concern for small business owners, Janssens said.
No. 2: Truncating numbers. A pilot program which truncates an individual's Social Security or tax ID number has been extended, which replaces the first five digits with and X or asterisk, in order to prevent identity theft, Janssens said. This has been extended for the rest of 2011 and 2012 on 1099 and 1098 forms.
Finally, here are some of Janssens' dos and don'ts for filing W-2 and 1099 forms.
Do: Use black ink only. On both forms, make sure to type in all information in black ink only. Never complete these forms by hand, and make sure they are being printed on perforated paper so they will be accepted upon mailing.
Do: Include decimal points for monetary values. Never use the dollar symbol or commas in these values.
Don't: Fold forms or staple them together. Also, don't make copies of the form 1099. Make sure you are using a government issued form, which has a pre-printed red ink drop out on it, Janssens.
Do: Provide your employees with instructions for both W-2 and 1099 forms.
Don't: Throw out forms. All small business owners must keep their W-2 forms and 1099 forms for at least three years after submission, he said.
To access the Webinar, please click here.