Annual payroll tax reporting is a necessary evil for all businesses and the year-end forms processing can be taxing, with the requirement that you must create and distribute forms to anyone you’ve compensated or conducted business with throughout the year. For some companies, this can be cumbersome as it can include vendors, partners, employees, or contractors. The purpose of year-end forms is to inform the government about how much you paid for services during the year and to notify your employees/freelancers about their wages and tax withholdings.
Sikich partners with Greenshades, a payroll, HR and tax solutions leader to support you in your year-end reporting and compliance needs. In this blog we share what you need to know about preparing for 2022 year-end forms and how products like Greenshades’ Year-End Forms solutions can assume some of the tedious tasks involved and help you remain complaint.
So, how can you best prepare?
Maintaining Records is key!
The best way to prepare for year-end is to keep organized records throughout the year. To maintain compliance and accuracy, it’s important for organizations to be conscientious about recording paychecks, employee information (including benefits), and confirm that wages and time off have been paid correctly. Keeping an updated employee record is vital to a compliant and smooth year-end process.
Using tax and compliance software, like Greenshades, can help safely store sensitive employee information, make it easier for employees to access and update their information, as well as organize, maintain, and prepare records come time to file.
Classifying your workers correctly is also a must before you can even get ready to distribute and file your year-end forms. If you need guidance, the IRS has a guide that helps business owners determine whether individuals are employees or independent contractors.
There are two scenarios on the website; if you are an independent contractor, the IRS has a page for self-employed individuals. For those that hire or contract workers for their business, the rest of the page will help you classify the worker within five possible employee types. The classification depends on the working relationship between the business owner and the individual.
The Common Law Rules are separated into three categories: behavioral, financial, and type of relationship; these factors provide evidence of the degree of control and independence that the worker has. One thing to note is that these factors are inconsistent; some may be relevant in one situation and not in another. However, looking at the overall working relationship is often the best way to make the correct classification. If you are still unclear about the working relationship and therefore can’t determine if a worker is an employee or an independent contractor, you can use form SS-8. Form SS-8 is filed by either the employer or the worker and can take up to six months to receive a determination.
Know the Deadlines
Deadlines are an unavoidable aspect of life, and the best way to prepare is to be aware and know the proper dates. To avoid unnecessary consequences and fees, your year-end forms must be distributed by January 31. So, for the 2022 fiscal year, recipients must have their forms by January 31, 2023. The deadlines for filing depend on the form type and the government agency, so it is essential to plan and ensure you prepare. Always ensure you use forms with the correct year since you cannot use a form with a previous year. The IRS website has updated forms, filing instructions, and deadlines available.
Know the Forms
W-4s, W-2s, and 1099s are all forms that you need to pay particular attention to – who you need them for and what you need to do. Of course, these are just a few of the key forms, so you’ll want to make sure you’re up to speed on all of the necessary forms you’ll need for the year. Check out the IRS website for more information.
Employers must always have W-4s and W-2s for each employee. The W-4 is the employee’s Withholding Certificate, filled out by the employee and this is recommended annually. The W-2 is a Wage and Tax Statement, filled out by the employer for each employee from whom income, social security or Medicare tax was withheld. W-2s require essential payroll information from both the employer and the employee.
(to be provided as an image- to come)
From the employer:
- Employer’s Tax ID Number (EIN – you can now apply for an EIN online)
- Employer’s name, address, and ZIP code
- Employer’s State Tax ID Number
From the employee:
- Employee’s full name, address, and ZIP code
- Total amount of wages – income, tips, and other compensation
- Total amount of federal income tax withheld
- Social Security wages, for more info, check out the Social Security Fact Sheet
- Medicare wages and tips
- Total amount of Medicare tax withheld
- Employee tips paid
- Benefits paid
- State information: wages and tips, income tax
- Local information: wages and tips, income tax, the locality name
Non-employees may need 1099 forms, which freelancers or independent contractors use to document how much compensation they received from another individual or businesses who are not their primary employer. Therefore, you will need to fill out Form 1099-NEC (non-employee compensation) if you are paying over $600 to any independent contractor, gig worker, or non-employee. 1099-MISC (miscellaneous income) reports other annual payments made to individuals, not including non-employee compensation.
Consider Your Options for Distribution and Filing
Once you have prepared all your forms, now it’s time to distribute and file.
When thinking about getting the correct forms to your employees and others, you may want to consider working with a company like Greenshades, which offers a Year-End Forms solution to help with electronic distribution or print & mail service. Many businesses find great value in the time and headaches they save from not having to manually manage this process themselves.
Greenshades collects W-2 and 1099 information directly from your Dynamics or payroll system, tax preparation software, or even from Excel spreadsheets for those on unsupported systems. The Year-End Forms solution can enable employee consent, making W-2 distribution a breeze. With access to the employee portal or mobile app, employees can quickly get notified and download their W-2s and 1095-Cs online.
When getting ready to file, it is essential that your forms are complete and accurate, and that all of your numerical data, such as wage amounts, are a match. Working with a payroll tax platform like Greenshades will alert you to potential problems and look for any errors and inconsistencies to flag. Combined with the ability to file electronically, Greenshades gives you peace of mind when filing at year-end (or any other time you need to file throughout the year!)
You Don’t Have to Dread Tax Season Each Year!
Although preparation for year-end can seem daunting, there are a few things you can do to take the dread out of the season.
- Set up sustainable methods of tight recordkeeping throughout the year
- Know your workforce and how to classify them correctly,
- Know the ins and outs of the necessary deadlines and forms
- Find resources to help you process your year-end forms
Sikich and Greenshades are here to support you during your year-end and make the process as painless as possible. Greenshades offers a cloud-based tax and compliance software that simplifies payroll taxes, streamlines the year-end forms process, and is ACA compliant. With the Greenshades Year-End Form solution, forms distribution and e-file services, Greenshades has you covered. Contact us for more information!