Every person and company your business paid during the year is waiting on a form from you in January, and so are two federal agencies. The deadline for most of it is January 31, which arrives faster than any other deadline on the business calendar because the holidays sit right in front of it. This is what has to go out, who it goes to, and what you should be gathering now so January is not a scramble.
W-2s for employees
Every employee who received wages during the year gets a W-2 showing total pay, federal income tax withheld, Social Security and Medicare wages and tax, and any other reportable items such as health coverage or retirement contributions. Copies go to the employee, and the full set goes to the Social Security Administration with a W-3 transmittal, both by January 31. An employee who left in March still gets one, mailed to the last address you have.
1099-NECs for contractors
Anyone who is not an employee and whom you paid for services during the year, once the total reaches the reporting threshold for that year, gets a 1099-NEC. That includes the subcontractor on your crew, the person who does your website, the hot shot driver you hired for a month, and the accountant, if the accountant is not a corporation. Copies go to the contractor and to the IRS by January 31. Payments made by credit card or through a payment app are reported by the card processor instead, so you do not issue a 1099-NEC for those.
Rent, attorney payments and a few other categories go on the 1099-MISC, which has slightly later deadlines for the IRS copy. Most small businesses in Midland only ever need the NEC.
What to collect before December
- A signed W-9 from every contractor, ideally before the first payment. It gives you the legal name, address, tax ID and entity type you need for the form. Chasing W-9s in January from people who have stopped answering is the single biggest cause of late 1099s.
- Current addresses for every employee, including the ones who left.
- A reconciled payroll: total wages and withholding from your records must match the four 941s you filed during the year, or the SSA will send a mismatch notice.
- A reconciled contractor ledger showing total paid to each one, by check, transfer or cash, separated from card payments.
Businesses that file a combined total of ten or more information returns of any kind must file them electronically. That covers most employers with more than a handful of employees and contractors. Paper is no longer an option for them, and the e-file setup takes time to arrange the first year.
What late or wrong forms cost
- 01A penalty per form for filing late, in tiers that rise the longer the delay, with a larger penalty for intentional disregard.
- 02A separate penalty per form for failing to give the recipient their copy.
- 03A mismatch between W-2 totals and 941 totals generates correspondence from the SSA and the IRS that takes months to clear.
- 04A contractor with no W-9 on file may have to be subject to backup withholding, and if you never withheld it, you can owe it.
Frequently asked questions
I paid my brother-in-law to help on jobs. Does he get a 1099?
If he was a contractor and the total reached the threshold, yes. Family does not change the rule. If he was really an employee, he should have been on payroll and gets a W-2.
A contractor refuses to give me a W-9. What do I do?
Document your requests, file the 1099 with what you have, and going forward, withhold backup withholding from further payments until you get one. Better still, do not make the first payment without it.
I made a mistake on a W-2 I already sent. Can it be fixed?
Yes, with a corrected form, a W-2c, filed with the SSA and given to the employee. The sooner it is corrected the less it costs, and the employee can file an accurate return.
Start the year-end in the fall
Bring your payroll records and contractor list before the holidays and January becomes routine. Call (432) 257-7547 or come by 700 C Andrews Hwy in Midland. English and Spanish.
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