END OF YEAR FILINGS
At the end of the year, you will be responsible for preparing and submitting paperwork to the government and to everyone you hired so they can do their taxes. These documents are known as Information Returns. There are two main Information Returns employers deal with: W-2 and 1099-MISC.
You must prepare a Wage and Tax Statement (W-2) for each employee, showing wages earned, federal and state income tax withheld, and other information necessary for the employee to prepare their personal tax return. You must send employees their individualized W-2 forms by January 31st.
You must also send those W-2 forms to the Social Security Administration (SSA). You can register and submit online through the SSA’s Business Services Online (www.ssa.gov/employer). You must submit by January 31st.
You must prepare a Miscellaneous Income (1099-MISC) form for each independent contractor you paid over $600. If the contractor earned less than $600, you don’t need to send anything (but the IRS still expects the contractor to declare all their income). You must send contractors their individualized 1099-MISC forms by January 31st.
Form 1099-MISC summarizes income from all non-employee compensation. This form basically tells the government how much the contractor should owe in taxes since no one was withholding their taxes throughout the year. Without this report, the government would have no way of knowing a contractor even made money.
You must send those 1099-MISC forms to the Internal Revenue Service (IRS) by January 31st. You can register and submit online using the File Information Returns Electronically system (https://fire.irs.gov/). This is called the FIRE system, and of course there’s an extra step involved when signing-up:
Once you register, you won’t be able to submit any Information Returns. All employers must first obtain a Transmitter Control Code (TCC) prior to electronically filing forms. You can get a code only if you have an Employer Identification Number (EIN). To apply for a code, you must submit Application For Filing Information Returns Electronically (Form 4419). You can submit this through the FIRE system. Not sure why the IRS couldn’t just assign you a code upon creating an account.
It’s also a good idea to have each employee submit to you a new W4 heading into the new year. If their financial or living situation has changed, this is their chance to adjust how their wages will be taxed.