Do you have employees? Then don’t forget to file W-2s in January!
Do you hire contractors? Then remember that 1099s are due in January!
What’s a W-2?
You might already know what a W-2 is, but let’s start with a quick refresher: a W-2 is the document that you, the employer, use to report each employee’s earnings to the Federal Government as well as the employee. It shows gross earnings less deductible items like medical premiums, payroll taxes like social security, and other important annual items.
A W-2 is not to be confused with a W-4, which is that document you must give to each new employee when hired to determine their withholdings. Fun fact: you must also give employees a new W-4 for them to fill out whenever they request it.
How Do I File a W-2?
Thankfully, most accounting and payroll software suites will complete W-2 fillings for you, even automatically mailing the employee copies to them. If your employees are hounding you for their W-2s, just keep in mind that you don’t owe them a W-2 until the end of January. It’s better to be accurate and timely than to be inaccurate and early. W-2s are correctable, but that’s a road you don’t want to go down unless it’s absolutely necessary.
If you don’t have fancy software1, or if you want to save a few dollars by just filing your own W-2, then our advice is: don’t. Seriously, just pay the company, because it also probably means that they’ll fix the W-2 if there’s a problem with it.
Still not convinced? Well, you can certainly find W-2 forms (plus your W-3 summary sheet for the IRS) online, print them, and send them yourself. Take a look here.
What’s a 1099?
A 1099 is a document used to report the amounts that you have paid contractors (not employees) who worked for you in the past year and earned more than $600. As an aside, they should have linked this amount to inflation.
The 1099 is basically a way to keep everyone honest, to make sure that the contractors who work for you are reporting all of their income to the IRS. If a contractor does not provide you with the information you need to file a 1099 on them, then beware — they might be trying to illegally work under the table. In this case you should still file a 1099 with all the information you have available so that you’re not also breaking the law.
How Do I File a 1099?
Well, the first thing to note is that you also have to file one 1098 along with all of your 1099s. The 1098 is a summary sheet of your 1099s — the types of 1099 as well as the total amounts.
As with W-2s, many accounting software suites will file 1099s for you and we recommend you use them for the same reasons. You can file these through QBO, Tax1099 and others.
If you want to file your own 1099s, then you literally have to order the forms from the IRS so that the IRS can mail them to you, so you can fill them out and then mail them back to the IRS. Remember, you should order at least one 1098 as well as the number of 1099s you need. We recommend ordering an extra 1098 and a few extra 1099s in case you make mistakes in filling them out.
What Happens If I File Late, or Not at All?
Trust us: you don’t want to experience this first hand. But we’ll go into detail about what happens so that you can see the gravity of the situation.
As mentioned above, you owe each employee a W-2 by January 31st. You get a bit of leeway if you’re mailing them — they should be in the mail on that day. W-2s (and the W-3 summary sheet) are due to the IRS by the last day of February.
If you file W-2s or 1099s less than 30 days late, the penalty is $50 per form. So if you’re late filing for three employees and two contractors, that’s $250. The fine doubles if you file by August 1st, and it increases to $260 per form if it’s later than that. Why risk late fees? File your forms early.
TL;DR: Don’t forget to file W-2s and 1099s on time. The fines and penalties for late filing are a giant pain.
1TL;DR: Accounting may earn a commission or credit for completed Gusto signups made through our referral link, though any such commission does not impact our honest recommendation of the software and service.