For those who attended our last training session on “Year End Payroll and Income Reporting for Recipients,” as we do every year around this time, we thoroughly discussed the traditional year end reporting requirements including tips on how to be better prepared and tips on things to look out for. We also covered two new areas:
- California Independent Contractor reporting
- California Pay Data reporting
And as we always emphasize, it is never too early to begin preparing for year-end tax compliance reporting!
Just as a refresher, this was our agenda, and it is also an excellent roadmap that, if followed, will lead to timely, accurate, and successful filings:
- The IRS requirements to report income disbursed to individuals and businesses throughout the year and upcoming due dates. You have to know the rules!
- A road map with due dates to help navigate the 1099 reporting and remain compliant with IRS requirements.
- The most common types of 1099 forms and other reportable payments.
- Handling CP-2100A notices from the IRS and processing 1099 corrections. We hope to avoid corrections, but we also want to process any corrections efficiently and accurately!
- Best practices, reports to use to audit vendor records, and how to prepare best to meet the annual filings requirements. We always strive for best practices!
As we reviewed, these are the most common types of forms for our client base:
- Employee compensation (Form W-2)
- Non-employee compensation (Form 1099-NEC)
- Rent payments (Form 1099-MISC)
- Interest income (Form 1099-INT)
- Payment card and third-party network transactions (Form 1099-K)
- Exercise of Incentive Stock Options (Form 3921)
California Independent Contractor reporting
We covered the California Independent Contractor requirements. California and several other states have such reporting requirements. Businesses and government entities are required to report specific information to the Employment Development Department (“EDD”) on independent contractors (defined as a “service-providers”). The information provided is used to locate parents who are delinquent in their child support obligations.
A business must report independent contractor information to the EDD within 20 days of these events, whichever occurs first:
- Entering into a contract with an independent contractor which equals or exceeds $600, or
- If there is no contract, when the aggregate payment to an independent contractor equals or exceeds $600.
A business is required to report independent contractor information if it pays compensation or enters into a contract with an independent contractor, and if it is required to file a Form 1099-NEC or a Form 1099-MISC for the services performed by the independent contractor.
A business must report independent contractors whose services are performed for any of its business operations doing business in California.
California Pay Data reporting
We briefly reviewed and discussed the California law that requires private employers of 100 or more employees and/or 100 or more workers hired through labor contractors to annually report pay, demographic, and other workforce data to the Civil Rights Department (“CRD”). More information about this requirement is available on the CRD website.
In conclusion and above all, please remember:
Report on Appropriate Form. When in doubt, reach out to the Murdock Martell team members on your account.
Fill Out the Forms completely. Pay close attention to the tax ID numbers, the payer’s information, the payee’s information, and the amount paid.
Submit Copies to IRS. Mail or electronically file the forms with the IRS by the specified deadline, which is typically at the end of January for most form types.
Provide Copies to Payees. Provide copies of the forms by the same deadline as you submit them to the IRS. Remember to obtain consent to send forms electronically and protect sensitive information ensuring digital documents are delivered securely.
Be aware of potential penalties for late or incorrect filing.
And finally remember our rule of thumb:
“When in doubt, send the 1099 out!”