By now, employers must be aware that the Internal Revenue Service changed the deadline for compliance with W-2 preparation and distribution to January 31, 2017. A W-2 or a 1099 is used to report wages, salaries or non-wage earnings. Payroll services use the W-2 form to report taxes withheld from each paycheck. In a similar manner, the 1099 form is used to report various types of non-wage income as well as wage-related income accrued as a contract worker. Moving up the deadline for transmitting these forms to the IRS is intended to strengthen anti-fraud efforts as defined by the Protecting Americans from Tax Hikes Act of 2015 or PATH.
Scope of the Change in Deadlines
To clarify what the change means for you as an employer, it is important to emphasize that starting in 2017, there will be a single deadline for federal W-2 forms whether you are filing on paper or electronically. This means that employees should receive copies of their 2016 W-2 forms by January 31, 2017 at the same time as copies of these forms and the accompanying W-3 are transmitted to the IRS. This deadline would have been February 28 before PATH provisions went into effect. January 31, 2017 is also the deadline for filing paper and electronic forms to the Social Security Administration, which would have been February 28 and March 31 respectively, before the implementation of PATH guidelines.
The new deadline for 1099 forms includes 1099-MISC forms with an entry in Box 7, which is reserved for non-employee compensation. If this box is blank, the deadline for compliance will still be February 28.
Impact of an Earlier Deadline on Payroll Services
Most states, including Wisconsin, have adopted the new deadline of January 31 for W-2 and 1099 forms pertaining to wages and salaries earned in tax year 2016. Employers or their payroll services companies are enjoined to review and verify employee information that is included in W-2 and 1099 forms. Any adjustments to year-end totals of wages earned and taxes withheld should be incorporated prior to the January 31 deadline. Year-end totals should be accurate, and the information contained in the W-2 and 1099 forms sent to employees and contractors should be consistent with the information on remittance reports submitted to the IRS periodically.
By requiring employers to transmit verification forms earlier, the IRS can compare information provided by taxpayers on their returns with data provided by employers. This is especially helpful for any questionable returns. Verification will be quick and convenient although this new process may delay the release of tax refunds.
Complying with the Change
Given the earlier deadline, employers will have an abbreviated compliance schedule, which also happens to coincide with the busiest time of the year. If you are handling payroll services in-house, this may be a good time to consider the advantages of outsourcing this basic function to a third party professional that specializes in this administrative function.
Aside from comprehensive payroll processing, professional companies such as Integrated Payroll Services, offer a tax pay component that is compliant with federal and state guidelines. They stay on top of legislative changes that affect payroll and taxes so that you are assured of being compliant at all times, minimizing the risks of penalties due to non-compliance. If you have any questions regarding the upcoming deadline change or any payroll-related issues, contact an iPS payroll expert at (262) 646-5210 to discuss possible solutions.