What is new: Federal penalties for late W2s and 1099s

JANUARY 31, 2017 is the  new deadline for filing 2016 Forms W-2 and W-3 both in paper forms and electronic. If you need 30-day extension complete Form 8809.

There are penalties for the late filing of W2s for employee compensation payments and  Form1099 Misc for non-employee compensation payments in box 7.These penalties are based on the length of time that the returns are filed late.

The categories of information return penalties are: late filing with the IRS and late furnishing to employees or independent contractors.

1. These penalties apply for the late filing of per return of W-2s and 1099s, due by January 31:

A. $50 if filed within 30 days from due date.

B. $100 if filed by August 1.

C. $260 if filed after August 1 or never filed.

2. The maximum penalties for A, B, C mentioned in 1. above are $532,000, $1,596,500, and $3,193,000 per year, respectively. These maximum penalties are lowered for small businesses to $186,000, $532,000, and $1,064,000 per year.  You are considered a small business if your  annual gross receipts is $5M or less for the last three years or since the business began if less than three years.

3. You could be subject to penalties for furnishing W-2s and 1099s late to your employees or independent contractors by the required date January 31 for W-2s and 1099s.  And the penalty amount is based on when you furnish the correct payee statement under code section 6722. This is an additional penalty and is applied in the same manner, and with the same amounts, as in failure to file correct information returns under code section 6721 by the due date.

4. The penalties increases to at least $530 per form W-2 if the failure to provide W-2s and 1099s to workers is due to intentional disregard of rules. There is no maximum penalty for this.

5. These penalties also apply if the returns are incomplete or incorrect.

6. There are exceptions for having these penalties abated.

Penalty exceptions for  failure to file correct information returns:

• The penalty will not apply to any failure that you can show was due to reasonable cause and not due to willful neglect. Generally, you must be able to show that your failure was due to an event beyond your control or due to significant mitigating factors. In addition, you must be able to show that you acted in a responsible manner and took steps to avoid the failure.

2. An inconsequential error or omission is not considered a failure to include correct information. An inconsequential error or omission does not prevent or hinder the SSA/IRS from processing the Form W-2, from correlating the information required to be shown on the form with the information shown on the payee’s tax return, or from otherwise putting the form to its intended use. Errors and omissions that are never inconsequential are those relating to:

• A TIN,

• A payee’s surname, and

• Any money amounts.

3. De minimis rule for corrections. Even though you cannot show reasonable cause, the penalty for failure to file correct Forms W-2 will not apply to a certain number of returns if you:

• Filed those Forms W-2 on or before the required filing date,

• Either failed to include all of the information required on the form or included incorrect information, and

• Filed corrections of these forms by August 1.

If you meet all of the de minimis rule conditions, the penalty for filing incorrect information returns (including Form W-2) will not apply to the greater of 10 information returns (including Form W-2) or one-half of 1% of the total number of information returns (including Form W-2) that you are required to file for the calendar year.

4.Forms W-2 with incorrect dollar amounts may fall under a safe harbor for certain de minimis errors. The safe harbor applies if no single amount in error differs from the correct amount by more than $100 and no single amount reported for tax withheld differs from the correct amount by more than $25.

If the safe harbor applies, you will not have to correct the Form W-2 and it will be treated as having been filed with all of the correct required information. However, the safe harbor does not apply if the payee elects to have you issue a corrected return.

5. Exceptions to the failure to furnish correct payee statements.

An inconsequential error or omission is not considered a failure to include correct information. An inconsequential error or omission cannot reasonably be expected to prevent or hinder the payee from timely receiving correct information and reporting it on his or her income tax return or from otherwise putting the statement to its intended use. Errors and omissions that are never inconsequential are those relating to:

• A dollar amount,

• A significant item in a payee’s address, and

• The appropriate form for the information provided, such as whether the form is an acceptable substitute for the official IRS form.

7. File Extension Form 8809 to get you 30 days extension from the original filing date of January 31. Complete Form 8809 using FIRE system at https:fire.irs.gov or if completed on paper: 1) fax to 1-877-477-0572 or 2) send to Internal Revenue Service, Attention: Extension of Time Coordinator, 240 Murall Drive, Mail Stop 4360, Kearneyville, WV 25430.

9. You may request for one additional extension for 30 days or less by submitting second Form 8809 before the end of the first extension.

In accordance with IRS Circular 230, this communication is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose.

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Al-os & Associates  Accountancy Corporation provides accounting and tax services to individuals, corporations, LLCs and business entities. The Firm has a niche in defending taxpayers audited by the IRS and other governmental agencies.