Did your small business hire employees for the first time in 2011? Did you use the services of an independent contractor? Or do you simply need a refresher on the ins and outs of wage reporting season?
Here’s what you need to know about your annual employer reporting obligations.
How to Report Employee Wages and Taxes – W-2s Explained
If you have paid wages and withheld taxes for employees during 2011, you are required by law to report these numbers (based on the data you’ve kept in your payroll register) to both the Social Security Administration (SSA) and to your employees. Here’s what you need to do:
1. Report Employee Wages and Taxes to SSA
As an employer, you must file Forms W-2 and W-3 with the SSA by February 29, 2012. If you file electronically the deadline is April 2, 2012. Of course, there are penalties if you miss these deadlines. Here’s how to file:
a) File W-2s Electronically – If you have fewer than 20 employees you can file your W-2s online and print copies for employees. You’ll also need to electronically file a W-3 form at the same time showing total earnings and taxes withheld for all employees combined. To avoid errors, it’s a good idea to check that your employee records (names and SSNs) are accurate and match SSA’s records. To make this process easier, you can verify names and SSNs online.
SSA has also developed this guide for small businesses which includes video tutorials, tips, and other information about how to file online.
b) File W-2s by Paper – If you prefer to file by paper, forms are available on request from the SSA. Follow these instructions for filing a paper W-2 and mail them to this address. Remember, you have a shorter window in which to file on paper (postmarked on or before February 29) than if you file online (April 2).
You can also use the SSA’s online filing process to upload a wage report, which is used by accountants, tax specialists, and any size filer. Only compatible formats are supported, so use the link above to verify if this option will work for you. Third party filers will need to wait two weeks for a password before proceeding, so plan accordingly. December is the preferred month to register.
The SSA has put together a useful W2 Online Filing Quick Guide for Small Business (PDF) that guides you through the filing process.
2. Provide Employees with W-2 Forms
As well as filing forms with the SSA, you’ll need to provide your employees with a copy of their individual W-2s with a postmarked date of January 31 or earlier. If you file your W-2s online, these can be printed out automatically. Alternatively they can be downloaded from the IRS website or purchased from an office supplies store and completed by hand.
Encourage your employees to verify that all the information on their W-2 is correct (name, mailing address, social security number). Any errors on the W-2 will need to be corrected by you as soon as possible using forms W-2c and W-3c (which can also be filed online).
Instructions for completing the W-2 and W-3 filing process are available at the SSA’s Employer Information Directory.
How to Report Payments made to Independent Contractors - The 1099 Form
If you’ve used the services of a freelancer, consultant, or independent contractor (all essentially considered non-employees) during 2011, you are required to report compensation of $600 or more to the IRS. This compensation includes fees, commissions, prizes, and awards.
Compensation is reported on form 1099-MISC. As a business, you are required to file 1099s to the IRS by February 28, but you also must furnish statements to the recipients of the income by January 31, 2012.
If you are unsure whether someone is an independent contractor or an employee, read SBA’s guide, Independent Contractor vs. Employees. If you are still unclear on how to classify someone, you can file a Form SS-8 (PDF). The IRS will then determine the workers status for employment and income tax purposes.
Read more in this article: Reporting Independent Contractors Compensation: A Guide to the IRS 1099 Form.
- SBA Guide to Employment Taxes for Employers and Self Employed Individuals
- SBA Guide to Managing your Small Business Tax Obligations
- Electronic Solutions for your Business Taxes
- Social Security Administration Employer Information Directory
- Are You Classifying Independent Contractors Correctly? IRS Offers Businesses an Amnesty