Payroll tax compliance for small businesses: 3 common questions
As a business owner, you’ve got a lot on your mind this time of year. The holidays can be a hectic time, as you seek to celebrate the season while also setting the stage for a successful new year.
In this post, we’ll address three common questions to help you get ready for the tax-filing season that opens next month.
When do W-2s and 1099s have to be sent?
As in past years, the date by which you need to send W-2s to employees is still January 31.What’s different this year is that the date by which copies of the W-2 have to be sent to the IRS has been moved up.
The deadline for sending a W-2 to the IRS used to be February 28. But now it is four weeks earlier, on January 31, the same date when the forms have to be sent to employees.
For contractors whom you will send 1099s, the same principles apply as to when the forms must be send. They are due to both the contractors and to the IRS by January 31.
What level of payments to a contractor triggers an obligation to send a 1099?
The threshold is $600. If you paid someone more than $600 this year for their work, and he or she isn’t an employee, it is necessary to file a Form 1099-MISC for those payments.
To be sure, there is no need to make payroll tax payments for contractors. Indeed, that may very well be one of the reasons you chose to use a contractor rather than an employee. But there is still the obligation for you to send a 1099 when the amount of the payments to a particular contractor exceeds the $600 threshold.
Does it make good business sense for a small business owner to be directly involved in payroll tax administration?
A lot depends of course on the size and specifics of your business. Generally it’s good to know enough about how the process works so that you can be clear about decisions such as the relative cost of a W-2 employee compared to a 1099 contractor.
It may be most efficient, however, to enlist tax professionals to handle payroll tax reporting and filing. That decision can free up your time and energy to focus on business strategy and execution.