The beginning of the year signals a time to refresh, renew and get prepared for the upcoming year. Now is the time to review and verify several important items to be sure you are prepared for the annual payroll reporting requirements. In this post, we’ll cover 1099 reporting and fringe benefits.
1099 Reporting
A month after the new year begins, your business may be required to comply with rules to report amounts paid to independent contractors, vendors and others. This task can be time-consuming and there are penalties for not complying, so it’s a good idea to begin gathering information early for your annual payroll reporting requirements to help ensure smooth filing. The deadline for providing 1099s is January 31.
Confirm Employee and/or Vendor Names, SSN/EIN and Addresses
Verify employee and/or vendor names and their tax identification number (SSNs or EINs). A mismatch of name and ID can generate an Internal Revenue Service (IRS) notice or even a penalty for employers. Always have all vendors that provide a service complete a W-9 form which will provide filing information.
1099 Reporting Requirements for a Trade or Business
1099-NEC. File for each person you have paid at least $600 in a calendar year for services performed in a trade or business by someone who isn’t treated as an employee (in other words, an independent contractor) This also includes parts and materials.
1099-MISC. File for each person or company (other than corporations) to whom you have paid at least $10 in royalties and more than $600 in rents, prizes and awards, and other income payments in a calendar year. This list is not all-inclusive, but these are the most common types of reportable payments.
There are also reporting requirements for payers of interest and dividends. Detailed instructions for these payments can be found at www.irs.gov as well as instructions and information for the 1099-NEC and 1099-MISC.
Not sure how to classify contractors? Check out this post about the FLSA Worker Classification Rule.
Taxable Fringe Benefits Summary
In addition to regular wages paid, you must report on and withhold taxable fringe benefits as part of your payroll reporting requirements. Generally, fringe benefits provided to an employee in connection with the performance of services are considered additional compensation and are includible in the employee’s gross income unless they are specifically excluded from income by statute. As compensation, fringe benefits are taxable for federal and state income tax purposes and are generally subject to payroll taxes. Some of the most common taxable fringe benefits relate to business-provided automobiles, life insurance premiums, and health insurance premiums.
Personal use of company vehicles
As you are probably aware, if automobiles provided by a business are used by employees for personal purposes, the value of that personal use must be included in the employee’s Form W-2 as compensation. Social Security and Medicare taxes must be paid by both the employee and the employer and deposited in a timely manner. Personal automobile use rules apply to all employees of the business, including owners.
Employer-provided life insurance
Another common taxable fringe benefit that must be reported on an employee’s Form W-2 relates to the value of employer-provided life insurance coverage. If your business is providing group-term life insurance coverage in excess of $50,000 to any employee (as described in IRC Sec. 79), you will need to determine the amount of compensation, based upon an IRS table, to include in that employee’s Form W-2. If employer-provided life insurance does not meet the IRS definition of group-term life insurance, the employer’s cost of the insurance premiums must be included in the employee’s Form W-2, regardless of the amount of coverage provided.
Health insurance premiums
Another payroll reporting issue applies to health insurance premiums paid for shareholders owning more than 2% of the outstanding stock of a Subchapter S Corporation. The amount paid for these premiums must be included in the shareholder’s wages and thus reflected on their Form W-2. The S Corporation shareholder may be allowed to claim a deduction on his or her personal income tax returns for payment of self-employed health insurance premiums.
Family attribution rules: Under the family attribution rules of IRC Sec. 1372(b), the spouse, children, grandchildren, and/or parents of a more than 2% shareholder–employee are considered to own the shareholder’s stock. As such, they are also considered more than 2% S shareholders, and the taxable fringe benefit rules discussed in the previous paragraph apply.
E-Filing Information Returns (Forms W2s, 1099s, 1094/1095s)
The IRS requires electronic filing of information returns if the combined total number of returns is 10 or more. Information returns include (but are not limited to) Forms W-2, 1098 series, 1099 series, Affordable Care Act (ACA) Forms 1094-C, 1095-B, and 1095-C.
For example, if an employer has four W-2s and six Form 1099-NEC and/or 1099-MISC, the total combined information returns are 10; the employer must then e-file all information returns.
SSA account link: https://www.ssa.gov/bso/bsowelcome.htm
IRS account link: https://www.irs.gov/filing/e-file-forms-1099-with-iris
Annual Payroll Reporting Requirements
Should you have any questions regarding your annual payroll reporting requirements or what other benefits may be considered taxable fringe benefits, please give us a call. Help is also available online at the IRS website, IRS.gov Publication 15B.
Updated December 2024.