There are many misconceptions about IRS tax forms, especially W-2s, 1099s, and of course the new 1095 forms introduced by the Affordable Care Act. This blog will attempt to clarify the misconceptions and truths about these forms but first, some background information.
The IRS requires employers to report wage and salary information for employees on Form W-2, which also reports the amount of federal, state and other taxes withheld from an employee’s paycheck. Another well-known IRS form used to report income is the 1099-MISC (Miscellaneous Income), which reports payments made in the course of business to individuals that are independent contractors, as well as similar payments to sole proprietorships.
Form 1095-A is a health insurance marketplace statement which includes personal information like name and a taxpayer’s amount of coverage. It also shows information about tax credits and if such credits were used to pay for health insurance, as well as the actual amount paid for coverage. Health care insurance providers and employers with fewer than 50 full-time employees) that offer health coverage, send the 1095-B form to their health insurance plan members for the tax year. This form lists the type of coverage, dependents covered, and the period of coverage. It also verifies Minimum Essential Coverage (MEC) for a taxpayer and his or her dependents. Form 1095-C shows the coverage that is offered to an employee by his or her employer for the tax year.
Misconceptions in Reporting Income & Tax Information
*Misconception: The Affordable Care Act’s requirement that employers report and file Form 1095 is not in effect for reporting year 2015.
Truth: New 1095 forms are required and have been added to the list of required forms for filers this year for reporting information for the tax year 2015.
* Misconception: Businesses must file Form 1095 if it employs 50 or more full-time employees.
Truth: Businesses must file Form 1095 if it employs 50 or more full-time equivalent employees. Many businesses wrongly calculate the correct number of full-time equivalent employees by ignoring non-full-time workers. The number of full-time equivalent employees equals the total number of full-time employees working 30 or more hours per week, plus the number of full-time equivalent employees. The number of monthly full-time equivalent employees is calculated by combining the number of hours of service of all non-full-time employees for the month up to 120 hours of service per employee, and then dividing this total number by 120.
* Misconception: If no state tax is withheld, employers are not required to file and report 1099 data to their state.
Truth: More than a few states require 1099s to be filed even if there is no state tax withheld. This is true in New York as employers must file Forms NYS-45 and NYS-45-ATT whether or not wages are subject to withholding of tax or payment of tax under New York’s Personal Income Tax Law.
* Misconception: The maximum penalty for small businesses failing to comply with W-2, 1099, and ACA reporting requirements is $500,000.
Truth: In 2015, the IRS announced an increase in penalties for failure to file correct information returns and provide correct payee statements for information returns filed after December 31, 2015. Maximum penalties for any failure to meet reporting requirements doubled from $500,000 to $1 million.
Misconceptions in Filing Tax Information
* Misconception: Copy A of Form 1099 may be printed in black ink and then filed with the IRS.
Truth: Copy A of Form 1099 must be printed, and filed, in red drop-out ink in order to be properly processed by the IRS.
* Misconception: All employers can file paper 1095 forms, regardless of size.
Truth: Employers with 250 or more 1095 forms must file them electronically. Incorrect filings will not be penalized for calendar year 2015 filing provided that employers and insurers timely file and attempt to comply in good faith.
* Misconception: The e-file income threshold for state W-2 and 1099 filing is the same as the federal e-file income threshold.
Truth: Taxpayers must check their resident state’s requirements as each state may set its own e-file threshold. New York allows almost 90% of its residents to qualify. New York residents with income less than $62,000 in 2015 qualify to e-file returns at no cost. Refunds generated by e-file returns take half the time as those for paper returns.
* Misconception: When filing on paper, one Form 1096 can be used for one submission of multiple 1099 form types.
Truth: A separate Form 1096 is required for each 1099 form type submitted in paper form to the IRS. Thus, If filing both 1099-INT and 1099-DIV forms, two 1096 forms are required.
* Misconception: When filing W-2s, 1099s and 1095s on paper, taxpayer-businesses are required to use official IRS-provided forms.
Truth: Non-IRS W-2, 1099, and 1095 forms are acceptable for filing as long as they meet the specifications outlined in IRS Publications 1141, 1179, and 5223 respectively.
If you are an employer and you need assistance in understanding and meeting the legal requirements for filing W-2, 1095, and 1099 forms, call THE TAX EXPERTS at the Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation call 212-490-0704.
