Clayton & McKervey, a certified public accounting and business advisory firm helping growth-driven companies compete in the global marketplace, knows this time of year brings a host of filing requirements and forms that companies need to finalize in order to file their taxes. Shareholder Margaret Amsden, CPA, who leads the firm’s tax department and is the point person for domestic tax strategies at Clayton & McKervey, says proactive preparation is half the battle in ensuring the tax filing process will go smoothly.
“Income, Social Security, Medicare tax withholding and payments that are not considered wages have to factored in for accurate reporting,” Amsden said. “It may seem a bit overwhelming, but companies that administer a system to ready their information now will have an easier time seeking the best possible financial advantages at tax time.”
Amsden offers a rundown on the key areas to consider when preparing year-end business reporting:
Form 1099’s – Depending on the nature of the non-wage payment, there are several:
Form 1099-MISC (Miscellaneous Income) relates to services rendered which are not reportable wages on Form W-2 and includes: rents, services prizes, awards, medical and health care payments, cash paid from a national principal contract to an individual, partnership, or estate, royalties, or payment to an attorney or law firm.
- For non-employee compensation, the form must be filed by January 31.
- Any other type of payment is due by February 28.
- For multiple types of payments, the IRS now requires two filing batches, one on or before January 31 and the second on or before February 28.
Form 1099-DIV (Dividends and Distributions) is required for payees who:
- Received at least $10 in dividends and other distributions on stock—not generally applicable to S Corporation distributions; had any foreign tax withheld and paid on dividends and other distributions on stock regardless of the amount of the payment; had any federal income tax withheld under the backup withholding rules regardless of the amount of the payment, or received at least $600 as part of a liquidation.
- There is also a change in exclusions on gains regarding all qualified small business stock – RICs acquired on or after January 1, 2019. If a RIC was acquired after December 31, 2018, then there will be no additional exclusions on any gain generated from that stock. If the stock was acquired on or before December 31, 2018, then the previous exclusions may apply to gains received.
Form 1099-INT (Interest Income) is required for payees who: received at least $10 in interest (or for certain payees at least $600); had any foreign tax withheld and paid on interest regardless of the amount of the payment; or had any federal income tax withheld under the backup withholding rules regardless of the amount of payment.
Form 1099-R (Distributions from Pensions, Annuities, Retirement or Profit-Sharing) is currently required for each payee receiving at least $10 from profit sharing or retirement plans, any IRAs, annuities, pensions, insurance contracts, survivor income benefit plans, permanent and total disability payments under life insurance contracts, and charitable gift annuities.
- Also reports death benefit payments made by employers which are not part of a pension, profit-sharing, or retirement plan, and reportable disability payments made from a retirement plan
- Special rules apply for reporting distributions to employees affected by natural disasters (refer to Pub. 976, Disaster Relief)
- Rollovers to a Roth IRA cannot be re-characterized as having been made to a traditional IRA
- Payments made to any state unclaimed property funds on or after January 1, 2019
Employers must file Form W-2 for wages paid to each employee subject to income, Social Security, or Medicare tax withholding and need to consider:
- Health Insurance Premiums paid for a 2% Shareholder in an S Corporation
- Personal Use of Employer-Provided Automobiles as an excludable working condition fringe benefit
- Group-term Life Insurance Coverage included in the employee’s gross income to the extent the cost of the policy coverage exceeds the cost of $50,000 of such insurance, less the after-tax amount (if any) paid by the employee toward the purchase of the insurance.
- Disability Insurance Coverage which is not required to be included in the employee’s gross income but if it is, then the benefit (if ever claimed by the employee) will be non-taxable
- The Affordable Care Act (ACA) required on the total cost of health care coverage on the W-2 form for all employers with more than 250 W-2 forms.
- Premium Reimbursement Plans on reimbursed payments for the purchase of individual health insurance policies in employees’ compensation.
Form 1095-C and 1095-B:
- Employers with more than 50 full-time employees need to report information regarding the health care eligibility and coverage for their employees on Form 1095-C (Employer-Provided Health Insurance Offer and Coverage).
- Employers with less than 50 full-time employees sponsoring self-insured group health plans will be required to file Form 1095-B (Health Coverage) to report information regarding the health care coverage for their employees.
Tax Cuts and Jobs Acts (TCJA) updates:
- Qualified Moving Expense Reimbursements Exclusion is no longer allowed during the tax years 2018-2025.
- Donated Leave–the allowance for employees donating their personal, sick or vacation leave days to qualified tax-exempt organizations helping victims of some specified, recent natural disasters, still applies in 2019.
- Qualified Equity Grants Reporting–The Internal Revenue Code (IRC) Section 83(i) covers “qualified equity grants” but comes with increased reporting requirements for eligible corporations with qualified plans. Generally, when stock from an exercise of a stock option or a stock grant is substantially vested, employees are required to recognize taxable income, and income tax withholding requirements apply. Note: In the case of a start-up business, this withholding burden often falls on the employee, which counteracts any incentive of the initial stock option or grant. Complex rules stipulate what companies are covered, employee notification requirements, and penalties if employees are not notified in a timely manner.
Amsden has written more in-depth on reporting requirements and exceptions and says that consulting with the appropriate accounting specialists can alleviate confusion and expedite the reporting process.