As you wrap up 2021 year-end accounting, don’t miss important to-dos. Below is a synopsis for your payroll and 1099 compliance reporting.
Verify the following items have been included in your year-end payroll and Forms W-2. If you missed anything, you may still have time to contact your payroll service provider to get them included before payroll returns are filed.
- Personal use of company vehicles by shareholders and employees
- Shareholder health for shareholders that own 2% or more of the company
- Group-term life insurance provided to the employee in excess of $50,000
- Verify employee information is correct for Form W-2 and 1095-C reporting
Forms 1099-INT and 1099-DIV should be issued for payments of interest and dividends to individuals, partnerships, and disregarded entities. Forms 1099-MISC and 1099-NEC should be issued to vendors for payments in excess of $600 during the year. Payment types to include on your 1099-MISC and 1099-NEC include:
- Other income
- Medical and health care payments
- Crop insurance proceeds
- Gross proceeds paid to an attorney, even if they are an S or C Corporation
- Services performed in the course of trade or business, including subcontractors, independent contractors, or directors
- Accounting and tax services
- Consulting services
- Repair/maintenance services
A best practice in preparation for year-end is to review vendor and employee files. Every vendor file should include Form W-9 signed by the vendor verifying its address, taxpayer identification number, and federal tax classification. This form will help to determine whether the recipient is required to receive a 1099, as well as verify the legal name, address, and identification number. If the above information is reported incorrectly, a notice will be issued by the IRS. These forms should be updated at least every three years to allow for updates to addresses and ownership.
Forms 1099-NEC are due to the recipients and to the IRS by January 31, 2022. Forms 1099-MISC, 1099-DIV, and 1099-INT are due by February 28, 2022, if filing by paper and by March 31, 2022, if filing electronically. Penalties will be assessed for the failure to file correct information returns by the due dates and for the failure to furnish correct payee statements. A penalty may also be assessed if you are required to file more than 250 information returns and do not file them electronically.
A few reminders as you prepare for 2022:
- The social security wage base that is taxed at 6.2% will increase to $147,000, up from $142,800 for 2021.
- The annual maximum that can be contributed to 401(k) and 403(b) will remain at $20,500. The maximum catch-up contribution for participants ages 50 or over also remains unchanged at $6,500.
- The annual maximum that can be contributed to an IRA is $6,000. The maximum catch-up contribution for participants ages 50 or over remains unchanged at $1,000.
- The dollar limitation for contributions to §125 flexible health spending arrangements is $2,850.
- The dollar limitation for contributions to health savings accounts is $3,650 for an individual and $7,300 for a family. You must have a qualified high deductible health plan to be eligible to contribute to an HSA.
- The dependent care flexible spending arrangement dropped back down to $5,000 after a temporary increase in 2021.
Please contact your MarksNelson advisor if you have any questions or need assistance as you close out 2021 and prepare for 2022. We are here to help you move forward.