Form 1099 and Health Insurance Reporting for Small Businesses
Form 1099 Reporting
Form 1099 reporting requirements can be extremely costly for small businesses due to the complexity of the rules and potential fines assessed for compliance failures. The IRS requires businesses to submit 1099s to other entities and the IRS when certain types of payments are made during the year. Of the 17 types of form 1099, the most relevant form (and the form we will be covering in more detail below) is the 1099-MISC.
What types of payments require a 1099-MISC to be filed?
Form 1099-MISC must be filed when $600 or more in total payments have been paid to certain entities or individuals for rents or services related to your trade or business during a calendar year. Payments for products or goods purchased do not require a 1099-MISC to be filed, and payments made to an individual not in the course of your trade or business do not require filing. Examples of services requiring payment include IT services and landscaping services performed for your business. If your business makes two payments of $400 each to one entity in a year for IT services, a 1099-MISC detailing $800 in total payments must be filed for that year.
Payments to what types of entities require filing?
Filing of 1099-MISC is not required for payments made to certain types of entities. The IRS generally does not require filing 1099-MISC for payments made to a corporation; however there are exceptions to this rule. 1099-MISC is required to be issued to a corporation for medical and health care payments, fish purchases for cash, attorney’s fees, gross proceeds paid to an attorney, and substitute payments in lieu of dividends or tax-exempt interest.
Additionally, the IRS makes a distinction between employees, whose wages are reported on form W-2 (and include applicable payroll tax withholding), and independent contractors, whose payments are reported on form 1099. It can be difficult to distinguish whether, based on IRS regulations, an individual should be classified as an employee or an independent contractor. The IRS’ general rule is that “an individual is an independent contractor if the payer has the right to control or direct only the result of the work and notwhat will be done and how it will be done.” If this is not the case, and individual should be classified as an employee.
When are 1099s due?
Form 1099-MISC for 2014 is required to be sent to any individual or business receiving total payments of $600 or more in 2014, on or before February 2, 2015 (extended from January 31, 2015 as this date falls on a Saturday). All forms 1099-MISC, and the related summary form 1096, for 2014 are required to be mailed to the IRS on or before March 2, 2015 (extended from February 28, 2015 as this date falls on a Saturday). Businesses are granted an automatic 30 day extension to file forms 1099-MISC and 1096 if form 8809 is filed prior to February 28, 2015.
Failure to file correct 1099s by the filing deadline may result in penalties of up to $100 per 1099. The penalties are reduced to $60 per 1099 if they are filed by August 1, 2015, or $30 per 1099 if they are filed by March 30, 2015 (without valid extension).
Health Insurance Reporting
On February 10, 2014, the IRS and Treasury issued final regulations regarding the Employer Shared Responsibility provisions that came about due to the Affordable Care Act. These are the provisions that require businesses with 50 or more total full-time and full-time equivalent employees to provide minimum health insurance coverage or face penalties imposed by the IRS. An employee is considered full-time if they work 30 or more hours per week on average. For the purposes of the provision, employers must also aggregate the average hours of employees who do not meet the full-time criteria in order to calculate full-time equivalent employees. For example, if an employer has 2 employees who each work 15 hours per week on average, then those two employees are counted as 1 full-time equivalent employee. This is because between both employees, they work an average of 30 hours per week.
Under the final regulations, filing requirements and penalties are effective for the year beginning January 1, 2015. Small employers who do not meet the 50 or more total full-time or full-time equivalent threshold but still offer employees insurance through an insurance company will not be required to file any forms. However, large employers who meet the threshold will be required to give form 1095-C to employees on or before February 1, 2016 (extended from January 31, 2016 as this date falls on a Sunday). All forms 1095-C, and the related summary form 1094-C, for 2015 are required to be mailed to the IRS on or before February 29, 2016. There is transition relief for employers with between 50 and 99 total full-time and full-time equivalent employees. If such an employer does not reduce their workforce except for a bona-fide business reason or reduce their existing health insurance coverage in 2014 or 2015, that employer will not have penalties levied against them. As this has been an ever-evolving process, we will keep you informed of any additional developments.
Both 1099 reporting and health insurance compliance are becoming increasingly complex and costly issues. To help avoid penalties for non-compliance, feel free to call or e-mail your ECS contact to discuss these topics in greater detail and determine how they affect you and your business.
2014 Tax Due Dates:
October 31st –
3rd quarter 2014 employer payroll tax returns due
November 30th –
Monthly Illinois wage report for October due (employers with 25 or more employees)
December 15th –
4th estimated tax payment for 2014 due for Corporations
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