One very important provision of the Protecting Americans from Tax Hikes Act of 2015 (the “PATH Act”) that was designed to combat the recent proliferation of tax fraud, was to accelerate the deadline for employers filing Form W-2, as well as for certain payers of non-employee compensation filing Form 1099-MISC. Business owners need to be aware of these new requirements in order to prepare for the coming 2017 filing season.
Until now, employers and payers of non-employee compensation were required to provide copies of W-2’s to employees and 1099-MISC to recipients by January 31st following the tax year and February 28th for paper submissions (March 31st for electronic filings) to the Social Security Administration (“SSA”) (IRS for 1099’s). This created a gap in time of at least a month during which the IRS had no means by which to verify the accuracy of W-2 and 1099 information that appeared on 1040’s that were filed during this period. Nevertheless, the IRS still issued refunds based on these returns. Any discrepancies were not addressed until the IRS cross matched the information at a later date. Needless to say, this provided fertile ground for acts of fraud.
Change is on the Way
Beginning with the 2017 tax filing season for the 2016 tax year, employer W-2 submissions and payers of non-employee compensation reporting amounts in Box 7 of Form 1099-MISC, will now have one filing deadline – January 31st. This means that employers and other payers will now be required to simultaneously submit copies of tax payment documents to the SSA/IRS and recipients, thereby closing the aforementioned fraud gap. It should be noted, however, that if you are reporting amounts on 1099-MISC in any boxes other than Box 7 (such as rents in Box 1 or royalties in Box 2), the filing deadline remains February 28th for paper filings or March 31st for electronic submissions.
Impact on Employers
The earlier deadline will require employers to be well prepared to complete year-end payroll tasks such as:
- Verifying the accuracy of employee information
- Identifying and reporting any year-end adjustments as soon as possible
- Reconciling annual employee compensation for any discrepancies
Any necessary corrections discovered subsequent to filing your W-2 (together with W-3) with the SSA, can be reported by filing Form W-2c, Corrected Wage and Tax Statement.
Impact on Payers of Non-employee Compensation
It is important that vendors and other payers maintain adequate records to identify and track 1099-MISC recipient information, including EIN’s, mailing addresses (request for Form W-9 from recipients, when necessary) and amounts paid. Many payers will need to address these requirements earlier than in the past to avoid a scramble to assemble this information before the end of January.
Impact on Taxpayer Refunds
At face value, this should not impact most tax refunds as the number of suspicious or questionable returns will most likely decrease with the increased ability of the IRS to match W-2’s and 1099’s from the outset of tax season.
Nevertheless, certain very early filers will see their refunds delayed since the PATH Act prohibits the IRS from issuing refunds prior to Feb. 15th for returns claiming the Earned Income Tax Credit (EITC) and/or the Additional Child Tax Credit.
The refund delay is an additional safeguard to help the IRS combat tax fraud by beefing up its efforts to authenticate taxpayer filings.
Penalties for Noncompliance
Penalties for failure to file correct information returns such as Forms 1099 and W-2 and/or to furnish correct payee statements have increased and are now subject to inflationary adjustments. For returns and/or statements due in 2017, the penalties are as follows:
- Failure to file penalties – The revised minimum penalty for intentional disregard of the requirements to furnish a correct payee statement is $530 per payee statement with no maximum penalty
- Late filing penalties – Penalties regarding information returns (e.g. Forms W-2 and 1099) are revised as follows, depending on when you file:
- $50 per information return if you correctly file within 30 days; maximum penalty $532,000 per year ($186,000 for small businesses)
- $100 per information return if you correctly file more than 30 days after the due date, but by August 1; maximum penalty $1,596,500 per year ($532,000 for small businesses)
- $260 per information return if you file after August 1 or you do not file required information returns; maximum penalty $3,193,000 per year ($1,064,000 for small businesses)
If you have questions, please contact Victor C. Belgiorno at 516-861-3704 or .