Employment taxes are always scrutinized by the IRS and state taxing authorities, particularly in the healthcare industry. Audit issues include reclassification of workers from independent contractor to employee; an individual receiving both a Form W-2 and Form 1099 in the same calendar year; incorrect employment tax forms preparation; the failure to issue Forms 1099; and general non-compliance with Form W-9 record-keeping. Form 1099 non-compliance penalties for failure to file and failure to furnish can be substantial, as well as the imposition of backup withholding, which is currently 24% for tax years through 2025 for non-maintaining certain vendor-completed Forms W-9.
Due Dates and Thresholds for Employment Tax Reporting
Different Due Dates Concerning Forms 1099-NEC and Forms 1099-MISC
The 2024 Form 1099-NEC is due to both recipients and the IRS by January 31, 2025, regardless of whether filing electronically or by paper. The 2024 Form 1099-MISC is also due to recipients by January 31, 2025; however, Forms 1099-MISC are due to the IRS by February 28, 2025, for paper filing or by March 31, 2025, for electronic filing.
Electronic Filing Requirements Concerning Forms W-2 and Forms 1099
The electronic filing threshold for informational returns filed after January 1, 2024, remains at 10 for the 2024 reporting period.
2024 Year-End Tax Planning Resources
Now’s the time to review your year-end tax planning options and strategies for the 2024 tax season. Withum’s Year-End Tax Planning Resource Center offers tips, legislative updates, and tax-saving opportunities for individuals and businesses.
Withum’s Employment Tax Recommendations
The IRS and state taxing authorities consistently review employment taxes for non-compliance. As a result, we recommend a comprehensive review of your employment tax reporting function, including:
- Payroll and accounts payable personnel should identify and review any workers who may be receiving both Form W-2 and Form 1099.
- Your written worker classification policy should be reviewed and potentially revised.
- Your accounts payable files should include a fully completed Form W-9 for all vendors.
- Utilize the IRS Taxpayer Identification Number (“TIN”) matching program, which is offered to payers and enables validation of TIN and name combinations prior to submission of Form 1099-NEC or MISC.
- A review of all your current “non-1099 required” vendors should be completed to determine whether a Form 1099-NEC or MISC should be issued.
- Review the vendor file to determine whether to report certain vendors and payments on Form 1099-NEC Box 1, nonemployee compensation, or Form 1099-MISC Box 6, medical health care payments.
- Maintain and update internal Form 1099-MISC and Form 1099-NEC policy to incorporate updates to IRS rules and regulations.
We recommend that an organization forms an internal working group to accomplish the above tasks, which includes representatives from finance, IT, legal and internal audit. Moreover, documentation of the process undertaken with respect to the above review should also be maintained, particularly in the event of an IRS or state employment tax audit examination. Assistance from your external tax adviser is also recommended.
Authors: John Smith | [email protected] and Tim White, CPA, MSA | [email protected]
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For more information on this topic, please contact a member of Withum’s Healthcare Services Team.
