Year-End Forms: What to Know, How to Prepare
Now that the end of the year is in sight, it’s time to think about the annual year-end forms process. In 2020, year-end forms are especially complicated thanks to new additions like the 1099-NEC, regulatory changes for COVID-19, and ever-changing interpretations of the laws in place. For this year, it’s important to know what the year-end forms are, how to prepare for them, and how to ensure that you have the right version of Dynamics in place to capture/report data accurately.
KeelCo, and our partner, Greenshades, are here to support year-end reporting and compliance concerns for our Dynamics customers. Whether you are looking to take advantage of native reporting functionality inherent to your Dynamics GP solution or looking to source a third-party provider for generating and mailing year-end forms, contact us to ensure you have the right timing and tools in place.
What Are Year-End Forms?
Year-end forms are the annual payroll tax reports that you must generate and distribute to anyone you’ve paid, such as employees, vendors, and contractors. You also need to provide the information in these forms to the relevant government agencies. With year-end forms, you’re informing both the payees and the government how much money you paid for the work that was done. These forms can include 1099s, W-2s, and 1095s. Each form is designed for a particular purpose; for example, W-2s are wage and tax statements and are used to report the income of employees, as well as how much was taken out of their pay in taxes for the year.
Year-end forms must be distributed to the recipients by January 31 of the following year (February 1 for 2021 since January 31 is a Sunday), and they must be filed with the government according to the deadlines set for each form by the related governing agency. Be sure the forms you use have correct year on them and are not drafts; you cannot use a form dated 2019 in tax year 2020 or use a form that is in draft format. Updated forms and form instructions can be downloaded from the IRS website.
This year’s year-end forms vary a bit from previous years. For example, the 1099-NEC is in use this year for reporting non-employee compensation. Be sure to use this when reporting payments that you’ve made to contractors, gig workers and other non-employee workers to whom you paid wages. Now that the 1099-NEC is back in circulation, the 1099-MISC does not have a box for non-employee compensation as it used to, but it is still used for the other forms of income that were previously reported on it. Check with the IRS website for the most updated information about forms and form changes that could affect you.
Getting Ready for Year-End Filing
Preparing for year-end really begins earlier in the year. You should be keeping meticulous records throughout the previous 12 months to ensure accuracy and maintain compliance in your filing. Make sure that all paychecks were recorded, verify employee benefits and deductions, and check that you have the correct wages paid and time off remaining for each employee.
You must also verify that your employees’ personal information is up-to-date and correct. One way to do this is to provide your employees a self-service portal through which they can update and manage their own personal information. This takes a significant burden off your HR team and empowers employees at the same time, with the added benefit of helping remote employees feel more engaged with the company. Encourage your workers to double check their information as you go into year-end.
Printing and Distributing Year-End Forms
When it’s time to start creating your year-end forms, you’ll need all the above information plus knowledge of the tax rates that affect you: federal, state and local, depending on where you company and employees are located. One good way to handle your year-end form process is to have a payroll software system in place that keeps all your payroll data and tax rate information updated and accessible for ease of use.
Once the forms are prepared, you are responsible for distributing the correct forms to your employees and others you have paid before the deadline. To that end, it’s often beneficial to use a service that offers year-end form mailing; in the current climate, with more people working from home than ever, it can be helpful to have forms generated, printed and mailed by a mail service so that no employee has to go into the office to do the printing and mailing by hand. Mail services like this can be run remotely from any computer, so no matter where you are, you can generate, print and mail forms without having to handle them yourself.
Going Forward For Next Year
As noted above, the best preparation for the year-end forms process is staying on top of your data and all the relevant regulatory changes throughout the year. One way to do this is to use a software system that allows you to aggregate your data in one place and archive data from previous years, so you have all the information you need at your fingertips.
In addition, look for a payroll tax platform that incorporates everything required to file at the federal, state and local levels, with regular updates to reflect changes in tax rates for various jurisdictions. That way, you can trust the system you’re using will stay current without having to research all of it yourself, saving you time and resources.
Finally, when you are filing your year-end forms – as well as any other forms you file throughout the year – use a software platform that will flag potential errors for you. Numbers that do not match or wage amounts that don’t line up properly can derail your process, incur penalties, and create major headaches for you; be sure your payroll tax software is watching out for problems before they happen. That will help keep your year-end process smooth, simple and hassle-free.
Don’t hesitate to reach out to me directly with how KeelCo may help your organization, or to answer any questions specific to year-end forms and filing requirements.