As the year comes to an end, companies start planning on the slew of year end forms that need to be filed with the IRS. Wanted to share my ideas on how my team and I get ready for these and what do we usually check for in advance.
Form W2: W2 summarizes an employees compensation from the company and taxes withheld. It is due to the employees and the IRS by January 31st.
- Make sure the employees confirm their Social Security Number
- Employees should check their address if they want to receive their W2 via snail mail.
- Check the Social Security Taxes are capped. For 2020, the earnings base is capped at $137,700. The taxes on the W2 for Social Security should not be more than $8,537.40 (6.2% of $137,700)
- Check that the total 401K contributions do not exceed the maximum allowed. For 2020, the defined contribution maximum limit for employee and employer is $57,000 ($63,500 for employees over 50 years of age)
- As I work in California, I also check employee’s State Disability Insurance amount on the W2 does not exceed the annual cap of $1,229.09 for 2020.
Form 1099: 1099 summarizes all the payments done to vendors. Due date for these is also January 31st.
- Make sure you have all required information for your vendors. Their entity type, Employer Identification Number (or Social Security Number for Independent consultants) and address.
- 1099 is to be issued to the vendor if:
- Payments for the year are over $600 (FY 2020)
- The entity is a LLC, LLP or independent consultant.
- Payment is done through company bank account/bill.com.
- 1099 is NOT issued to a vendor if:
- The vendor is a C Corporation, Foreign Organization or Foreign Consultant or a Government or Tax-Exempt Firm.
- Payment is done through credit card, Paypal, Stripe or any other payment processor. If the cumulative payment is over $20K the processing company issues a 1099K, otherwise you need to issue a 1099.
Form 3921 and 3922: These forms are related to company’s stock plan. These are due to the employees by January 31st; it is due to IRS by February 28th if filing by paper or March 31st if filing electronically.
- If and employee exercised incentive stock options (ISOs) in the year form 3921 should be issued to the employee and filed with the IRS.
- A form 3922 is filed, if the company records a transfer of legal title of shares acquired under an Employee Stock Purchase Plan (ESPP) when either:
- Purchase price of the shares was less than the fair market value of the shares of stock on the grant date OR
- Purchase price of the shares was not fixed or determinable on grant date.