Filing taxes is an essential part of the end-of-year process for businesses and employees alike. It’s important to get it right so that everyone involved can benefit from accurate taxation and avoid any potential penalties or fees. Unfortunately, mistakes on W-2 forms are common, leading to unnecessary stress and wasted time. This article will explore some of the most common W-2 mistakes and offer advice on how to correct them.
Common W-2 Mistakes: Not Knowing the Difference Between W-2 and 1099-NEC
We have already covered some of the most common 1098, 1099-MISC, and 1099-NEC mistakes and how to avoid them in a previous blog article. But today we wanted to talk about the difference between a W-2 and 1099-NEC employee, as well as the importance of catching and correcting mistakes on W-2 information returns before you’ve filed or reached out to a tax accountant.
As most of us know, W-2 employees are employed directly by an organization. Those workers who often classify themselves as contractors or freelancers, and don’t have consistent work, pay, and benefits provided by the companies they work with will more likely be classified as 1099 workers.
And this is one of our first hidden mistakes that many businesses and employees are unaware of or overlook and that’s the misclassification of employees.
Because 1099 workers are responsible for paying more payroll and related taxes (like Social Security and Medicare), it benefits employers to not classify them as full-time W-2 employees.
However, independent contractors who work via 1099 and W-9 forms are also much less beholden to the companies they are serving. If this is not the relationship you have with the people you are employing, then you need to classify them as W-2 employees, which keeps you in compliance and also allows for an easier time when it comes to running payroll.
Not Double-Checking Employee Info
Your employee tax information and details can change at any time throughout the year. Don’t wait until tax time to check your employees’ info – it’s important to report your payroll accurately, both for your company and for your employees as they prepare their taxes.
When you are processing payroll, you should make it a tax practice to ensure the following information is correct in your system:
- Full names (especially important for those who are newly married, divorced, etc.)
- Employment dates – when they started, if and when employment was ended
- Tax filing numbers
- Date of Birth
- Current address
- Payroll details: hourly rates, gross wages, employment periods, any bonuses or promised raises. Etc.
These details are important for taxes, but they also affect your company’s benefits enrollment and coverage.
Using a Form from the Wrong Year
Federal, state, and local governments are constantly changing items in the tax code every year. And it’s very easy to miss small details, like being unaware that you are using a previous year’s tax forms instead of the current tax year’s.
Even if the last W-2s you used and the newest forms from the IRS look identical, it’s important to switch over to using the latest version of any IRS form you need to use. This helps simplify reporting, reduce errors, and make things easier to date and keep track of as you accrue more and more tax data every year that you own or operate your business.
Formatting and Paper Integrity Errors
The IRS often receives paper forms that have been cut, stapled, folded, trimmed, and otherwise altered – this is something you should refrain from doing. Don’t staple your W-2s together or use any sort of folding or extra colored ink to note different W-2s for different purposes, departments, etc.
There are also several formatting errors to avoid. One of the most common is ink color. You should only be using black ink on these forms, not other colors. The font size that is most recommended is Courier, 12-point font. It must be big enough to read, but not so big that it doesn’t fit in the boxes.
And money amounts on tax statements should not have a dollar sign, but they should be written to the second decimal point, for example, 1000.00.
Filing Employee/Employer Taxes and Information Returns Late
If you are running a business or even just head of a payroll or financial department in your workplace, you know that deadlines are the bread and butter of a great organization.
No one wants to deal with people or businesses that can’t keep to their timelines. And tax reporting is no different. If you run payroll late or are missing information, this makes it harder for your teams to hit their deadlines.
In turn, that can mean penalties for your business. If you don’t have your information returns sent out on time, there are penalties. Filing payroll taxes late can result in a 15% failure-to-deposit penalty.
And if you are compounding mistakes and you’ve submitted tax forms or information returns and that are incorrect or full of mistakes, you could be looking at penalties ranging from 2 to 10 percent of your total payroll amounts. That’s worth at least a little bit of foresight and planning, right?
Your Form W-2 filing due date is always January 31 – that is the date that you must send your information returns to employees and the Social Security Administration
eFile360 is here to help you keep your information returns up to date and easy to put together for every tax year in your business’s future. Reach out to us with questions about your W-2 and 1099 filing.
Sign up for a free eFile360 account today to take advantage of our easy-to-use information return filing options and avoid common W-2 mistakes.