Beginning in January, 2017 several important tax provisions that directly affect taxpayers who own businesses or rental properties will take effect. Keeping in harmony with other recent tax legislation, the penalties for non-compliance are higher than what have been seen in the past. As a business owner, you will want to stay one step ahead of the annual tax season, which includes the mandatory filing of 1099s for independent contractors and W-2s for employees. What can you do to streamline the reporting process? Throughout the year we will follow-up this article with some suggestions that may assist you in complying with these changed requirements.
Earlier deadline for filing information returns. The new laws require Forms W-2, W-3, and certain Forms 1099-MISC, to be filed with IRS/SSA on or before January 31 of the year following the calendar year to which such returns relate, regardless of whether the forms are filed on paper or electronically. This provision applies beginning with returns and statements filed in 2017. Currently, the deadline for paper filers to file these returns is the end of February and the end of March for electronic filers. With accelerated filing, the administration is targeting tax fraud and identity theft. The deadline for providing these forms to the employees or vendors remains the same at January 31.
The 1099-MISC form requires additional explanation because not all of them (but most) are required to be filed on the new deadline schedule. This form must be filed with the IRS by January 31 (or the first business day after January 31 if January 31 is not a business day) if a payer makes an entry in Box 7 to report nonemployee compensation. The filing deadline is still the last day in February for paper forms, and the last day in March for electronic forms, if Form 1099-MISC is filed to report any income, other than nonemployee compensation.
Increased Penalties for Non-Compliance. The amount of the penalty is based on when you file the correct information return. These increased penalties became effective January 1, 2016. The penalties are as follows.
- $50 per information return if you correctly file within 30 days (by March 30 if the due date is February 28); maximum penalty $532,000 per year ($186,000 for small businesses, defined below).
- $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 do not file needed corrections and you do not meet any of the exceptions to the penalty, the penalty is $260 per information return.
- If any failure to file a correct information return is due to intentional disregard of the filing or correct information requirements, the penalty is at least $530 per information return with no maximum penalty.
- There are safe harbor and De minimis rules that can mitigate or eliminate the penalties, but eligibility requirements are stringent.
Extensions of time to file. Extensions of time to file Form W-2 with the SSA are no longer automatic. For filings due on or after January 1, 2017, you may request one 30-day extension to file Form W-2 by submitting a complete application on Form 8809, Application for Extension of Time to File Information Returns, including a detailed explanation of why you need additional time and signed under penalties of perjury. The IRS will only grant the extension in extraordinary circumstances or catastrophe. This does not affect extensions of time to furnish Forms W-2 to employees. The automatic 30-day extension to file forms 1099 is still available at this time but the IRS intends to remove it also – effective, probably, for the 2018 tax filing season.
Filing deadlines for income tax returns. The AICPA has been advocating for changes to various tax return due dates since 2006. That’s when members started voicing concerns that taxpayers were struggling with due date problems. Specifically, problems were created when flowthrough entities’ Schedules K-1, containing information provided by partnerships and S corporations, arrived late. Sometimes these Schedules K-1 arrived within days (before or after) of the extended due date of their partners’/owners’ personal returns and sometimes they arrived up to a month after the extended due date of their partners’/owners’ business returns. For the 2017 filing season and beyond, taxpayers should start to see tax information from flow through entities arriving more timely. Taxpayers, therefore, should have to deal with fewer estimates and amended returns. Below is a table of deadlines for the common tax forms. The dates that have changed are indicated in red: