Since all businesses make payments to operate, the IRS requires each to report these transactions in the form of an information return.
An information return form is used to report taxable payments to the government. This enables tax agencies to track individual income and how much tax is owed. With an information return, the tax liability for each individual in a year is calculated. Hence, businesses are directed to report payments made to employees and other forms of payments.
Types of Information Return
There are different forms of information return and avenues of reporting them. According to the IRS, it may be difficult to list all the numerous types of taxable income, regardless, listed or not, every form of payment must be recorded and reported.
1099-NEC is to report compensations to non-employees. It includes the payment made to hired independent contractors.
The W-2 is used to report employees' wages and taxes. It will contain information on how much employees are paid and the amount withheld from wages to serve as tax.
Apart from regular wages, employers may choose to give tips to employees. Since tips are separate from wages, the employer must report the payment using the 8027 form. It will contain the amount received by each individual as tips.
1099-MISC, payments to 1099 vendors are reported using the 1099-MISC.
Common Transactions to Record are:
- Interest on Mortgage
- Acquisition of property
- Barter exchange and redeemed security
- All forms of interest income
- Agreement settlement
- Canceled debts
- Transfer of stocks
- Health insurance premiums
- Retirement profit distribution
- And many more.
Filing Information Returns
There are guidelines for filing information returns. Businesses file electronically to the IRA or SSA. The rule of thumb is that if you have more than 250 information returns then use the electronic channel to file. The due date for submission must be followed.
How to File Form 1099-NEC
File Form 1099-NEC with the IRS if the total amount paid to independent contractors exceeds $600 within a year. File Form 1099-NEC electronically using the IRS online channel or via mail. When sending by mail, include Form 1096. As the IRS gets a copy, individual contractors should likewise get a copy by January 31st.
How to File Form W-2
File Form W-2 is sent to the SSA( social security administration), the employees get a copy, and the state government. The SSA receives the W-2 submission via mail or electronically. This submission will include Form W-3 which paraphrases the W-2. Both forms must be sent to the SSA and employees by January 31st of every year.
How to File Form 8027 and 1099-MISC
Under Form 1099-MISC, medical, rent, and payments to vendors are included and sent electronically to the IRS, forwarded to vendors, and shared with necessary agencies in the state. The same applies to the Form 8027 which is also filed annually to the IRS. The Form 8027 is due by March 31st if it's to be sent electronically but due February 28 if it's by mail. As for the 1099-MISC, electronic submission is due by March 31st and 28th of February via mail.