Get Ready for Tax Filing Season; Part 1: Reporting Employee & Contractor Wages

Most business owners can't afford to put off till the afternoon what they can do in the morning. The same is true when it comes to tax season preparation.

It doesn't matter whether you employ two people or 100, getting ahead of your obligations and your arms around tax law changes is good business management.

In this first tax preparation post, -ll discuss some of the steps you can take now to prepare for wage reporting season, as well as some of the new and existing resources that can help streamline the process. And, look out for Part 2, where -ll walk through some of the key legislation that benefits businesses and employers for tax year 2010, and impacts your tax preparation.

Get Ready for the Busy January / February Employer Reporting Months

If you are a seasoned employer, have hired employees for the first time, or have used independent contractors in the past year, her's what you need to know about your annual reporting obligations.

1) Employee Wage Reporting

As an employer you must provide your employees with W-2 forms by a postmarked date of January 31 for individual income tax purposes (see the'How to Fil' section below for instructions on how to create these forms).

W-2 forms must also be filed with the Social Security Administration (SSA), showing wages paid and taxes withheld for the year. This must be accompanied by your W-3 form (which shows the total of all W-2s) by the end of February (or the last day of March if you file electronically).

All the forms you need to complete wage reporting are available now at the Social Security Online website.

Before You File

I's a good idea to verify the names and social security numbers with the SS's records before you prepare and file your W-2s. The SSA requires that each W-2 matches the name and SSN on the employe's Social Security card. If not you may face additional processing costs, paperwork, and un-credited earnings for your employees.

There are two Internet options to verify names and Social Security numbers through the Social Security Number Verification Service (SSNVS):

• Verify Up to 10 Names and SSNs Online' The Social Security Business Services Online (BSO) website lets you submit up to 10 names/SSNs and receive immediate results. This option is useful for smaller employers or for those verifying new hires. (Advance registration is required for BSO)
• Upload Files of up to 250,000 Names and SSNs' Again this is done via the BSO website and results are typically available by the next government business day. This option is ideal if you want to verify an entire payroll database or if you hire a large number of workers at a time.

Read more about the Social Security Number Verification Service (SSNVS). If you prefer not to do this online you can contact your local Social Security office for verification assistance.

How to File your W-2s

Businesses with fewer than 20 employees can now file W-2 reports online through the Social Security Business Services Online (BSO) site using the W2-Online e-filing method. This method gives you the added benefit of a later filing deadline (electronic filers have until the last day of March vs. the last day of February for all other filers).

With W2 Online you can submit up to 20 W-2 forms. No software is needed, just complete the forms on your computer, upload them electronically to the SSA, and print copies so that you can give them to your employees.

The SSA has put together a useful W2 Online Filing Quick Guide for Small Business file that guides you through the filing process.

You can also use e-filing through the BSO site to upload a wage report (used by accountants, tax specialists and any size filer).

Remember, registration is required for the BSO site. You will be given a Personal Identification Number (PIN) immediately but will need to wait two weeks for a password - so plan accordingly.

2) Reporting Payments to Independent Contractors

If you have paid an independent contractor or other business who is not your employee at least $600 during the year, you should have been maintaining W-9 forms, contractor's business licenses and certification of insurance during the year. The end of January is the deadline for sending each independent contractor a completed copy of Form 1099-MISC (PDF) to report payments made to that contractor.

Check out Reporting Independent Contractors Compensation: A Guide to the IRS1099 Form and visit Business.gov's Hiring Independent Contractors Guide for more information about your obligations.

Related Articles

• Handling Employer Tax Responsibilities
• Business.gov's Ultimate Guide to Business Taxes
• Tax Preparation: 3 Essential Online Tax Resources to Add to your Toolkit

About the Author

Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley