Greatland, a provider of W-2 and 1099 tax information reporting software, has issued a guide to help tax preparers navigate the tax changes enacted into law this past year.

The IRS has always imposed consequences for misfiled or late tax forms, but as of Jan. 1, 2011, W-2 and 1099 penalties for failure to file correct and timely returns have increased, the company noted. Penalties range from $30 to $250 per incorrect return. Employers need to file on time and file correctly to avoid issues.

W-2 & W-3 Form Changes and New Additions
The recently passed Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 called for an extension of unemployment benefits, a 2 percent employee payroll tax cut, and allowed businesses to expense 100 percent of certain investments in 2011. When filing this year, employers recall that this act also has temporarily reduced the rate of social security tax withholding (for employees only) from 6.2 percent to 4.2 percent for wage payments made in 2011. Social Security tax withheld is reported in box 4 on the W-2 form.

Also new in tax year 2011, a portion of the W-2 (box 12-code DD) is now designated for employers to report the cost of coverage under an employer-sponsored group health plan. Part of the Affordable Care Act, this requirement is optional for all employers in 2011 in order to provide them more time to update their payroll systems before it becomes mandatory in 2012.

The IRS provided further relief for small employers filing fewer than 250 W-2 forms by making the reporting requirement optional through 2012, and continuing elective treatment for smaller employers until further notice. This new reporting requirement is for informational purposes only and is not taxable. Roth contributions under a governmental section 457(b) plan are another new addition to this year’s W-2 form (box 12-code EE) and the section designated to report HIRE wages in 2010 (box 12-code CC) is now obsolete. 

To improve document-matching compliance, a ‘Kind of Employer’ option has been added to the W-3 form, which includes five new checkboxes for individuals to select if they are a state/local employee, federal government employee, etc. Filers are now required to check one of these new boxes or select the “None Apply” option if appropriate. The advance earned income credit payment was eliminated for tax year 2011; therefore, this correlating box has been deleted from all 2011 W-2 and W-3 forms.

In addition to the above W-2 and W-3 form changes, Greatland also noted several specific form updates to various 1099 forms. Below are several of the more prominent changes for 2011:

All 1099s: The pilot program for shortening an individual's identifying number (TIN) on paper payee statements has been extended through 2012. The payees’ identifying numbers that can be truncated are Social Security Number, IRS Individual Taxpayer Identification Number, or IRS Adoption Taxpayer Identification Number. The identifying number can be truncated by replacing the first 5 digits of the number with either asterisks or X’s and truncations can only appear on paper payee statements

• 1099-K: Form 1099-K, for merchant card and third-party network payments, is new in 2011 and will be used by payment settlement entities to report merchant card payments and third-party network transactions to participating payees.

• 1099-SA & 5498-SA: Excess employer contributions (and the earnings on them) withdrawn from employee HSAs by the employer should not be reported as a distribution on Form 1099-SA or as a contribution on Form 5498-SA.

Below are some important dates for filers to remember as they enter tax season:

• Jan. 31, 2012 – Due date to send most 1099s and Copies B, 2, and C of form W-2 to each employee / recipient

• Feb. 28, 2012 – Due date to send Copy A of form 1099 to the Internal Revenue Service

• Feb. 29, 2012 – Due date to send Copy A of form W-2 to the Social Security Administration (SSA) on paper

• April 2, 2012 – Due date to send copy A of form W-2 to SSA and form 1099 to IRS electronically (e-file)

For more information, Greatland provides a W-2 and 1099 fact center on its Web site with answers to many other filing questions.

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