When you running a small business, it is important to know which form is used when the tax season come. The most common forms in business are Form W-2s and 1099s.
What is Form W-2?
Let’s start with a quick refresher: Form W-2 is the document that employers use to report each employee’s wages and earnings to the IRS as well as the employees.
How to file Form W-2?
Most businesses use accounting and payroll software, which will complete fillings of Form W-2 for employers, even automatically mailing the employee copies to them. You can file from e-file or paper and send it to IRS.
Understanding payment categories for the Form 1099s
What is new for tax year 2020?
From 2020, the IRS has introduced the new Form 1099-NEC just for reporting independent contractor income. Because of this, you are no longer using Form 1099-MISC for reporting non-employee compensation. Let’s check out new arrangement and box numbers for reporting certain income.
What is Form 1099-NEC?
Form 1099- NEC is a new document specifically used to report the amounts for non-employee who worked for you during 2020 and earned more than $600. Non-employee who is not on payroll on a contract basis. If you do not have contractor’s information, ask them to fill out Form W-9 for the preparation of Form 1099-NEC.
New: If you filed Form 1099-MISC with only Box 7 in the past, you should more likely to choose Box 1 (Nonemployee compensation) on the Form 1099-NEC.
What is Form 1099-MISC?
Form 1099-MISC is to report payments made in course of a trade or business to non-employee.
Ready to file your 1099s, see What is a 1099 and do I need to file one?
Deadline: January 31, 2021
What if missing the filing deadline?
If you missed the deadline of January 31, 2021, you will need to pay a penalty depending on how late the filing is.
- $50 if you file within 30 days
- $100 if you file more than 30 days late, but before August 1
- $260 if you file on or after August 1