The time for year-end reporting for wages and other types of payments is drawing near. Please review the attached W-2 and 1099 categories as the information summarizes the major reporting requirements for compensation related to W-2 and 1099-MISC issues. If one or more categories apply, or if you have any questions or special situations which are not outlined, we can assist you in the proper reporting of these items. The following are some items to note for the 2017 year:

  1. If Thoresen Diaby Helle Condon & Dodge, Inc. prepares your quarterly payroll tax returns and W-2s  and/or 1099s, please have the applicable information to prepare those forms to our office no later than January 10, 2018 to allow us adequate time to complete and mail the forms to you. If you use an outside service bureau or similar service to process your payroll, please contact them as soon as possible to determine their deadline for accepting such information (normally before 12/15/17).
  2. Notice: Forms W-2 and 1099-MISC filing calendar for 2017 –
    1. 2017 paper and electronic filed Forms W-2 (with Form W-3 cover page) must be filed with the Social Security Administration no later than JANUARY 31, 2018. Potential late filing penalty is
      $50 per form W-2 if within 30 days of due date; $100 per form W-2 more than 30 days after due date but before August 1; $260 per form W-2 if filed after August 1
    2. 2017 paper and electronic filed Forms 1099-MISC with NONEMPLOYEE COMPENSATION (NEC) AMOUNTS IN BOX 7 (with Form 1096 cover page) must be filed with the Internal Revenue Service no later than JANUARY 31, 2018. Potential late filing penalty is $50 per form 1099 if within 30 days of due date; $100 per form 1099 more than 30 days after due date but before August 1; $260 per form 1099 if filed after August 1.
    3. All other Forms 1099 including non-NEC Forms 1099 MISC (i.e. Interest, Dividend, etc.) must be filed with the IRS no later than February 28, 2018 (April 2, 2018 if filed electronically).
    4. Employee copies of all W-2s and recipient copies of most Forms 1099s are to be furnished to the recipients on or before January 31, 2018. (Forms 1099-MISC with amounts in box 8 or 14, 1099- B, 1099-S must be furnished by February 15, 2018).
  3. Due to continued increased scrutiny from the IRS, owner/officers of S corporations should review their 2017 salary before year end. The IRS requires a “reasonable” salary be paid to officers/shareholders. Although the IRS does not define “reasonable”, we can provide you with guidance on determining your 2017 salary. Also due to recent IRS court cases, we recommend that owner/officers of S corporations be issued wages periodically throughout the year rather than a lump sum at year end. 

    Also pertaining to owner/officers of C and S corporations:

    • Personal use of company owned vehicles must be included as additional compensation on the W-2s of C and S corporation shareholders and employees.
    • S corporation shareholders only: Company paid health and dental insurance premiums must be included as additional compensation on these shareholders’ W-2s.
  4. Employers are required to deposit taxes electronically anytime the payroll tax liability is $2,500 or greater, using the Electronic Federal Tax Payment System (EFTPS). The web address to enroll to deposit federal taxes electronically is www.eftps.gov; click the “ENROLLMENT” button to begin. Failure to make payments using EFTPS online could result in a ten percent failure-to-deposit penalty.
  5. In 2017, the mandatory Social Security and Medicare tax on employees’ wages is 6.2% and 1.45%, respectively for a total deduction of 7.65%. Employers are required TO MATCH this withholding and can deduct this as a business expense. The maximum amount of earnings subject to the Social Security tax is $127,200 per employee. In 2018, the maximum earnings subject to the Social Security tax will be $128,400. 

    Wages in excess of $200,000 earned in 2017 will face an extra 0.9% Medicare tax, which will be withheld from employee’s wages only (employers are not responsible for this additional tax).

  6. All businesses are required to be registered with the Minnesota Revenue E-Services System to electronically file Sales tax and Withholding tax returns and electronically pay all Minnesota tax types including Corporate, Franchise, Sales and Withholding taxes.
  7. You must report the hiring or rehiring of any employee to the Minnesota Department of Human Services within 20 days of hiring the individual. Employers can report new hires online at http://newhire- reporting.com/MN-Newhire/default.aspx.

    If you don’t have access to the internet, you may mail or fax a copy of the employee’s W-4 form to the Minnesota New Hire Reporting Center. (Be sure boxes 8 and 10 are completed with the employer’s information).

    Minnesota New Hire Reporting Center
    PO Box 64212
    St. Paul, MN 55164-0212
    Fax: 1-800-692-4473

  8. At this time, there are no changes to the requirements in the Affordable Care Act (ACA) which mandate employers must offer employees (AND DEPENDENTS) an opportunity to enroll in minimum essential health care coverage under an employer-sponsored plan for firms with 50 or more “full-time equivalent” (FTE) employees. This employer-sponsored plan must meet the requirements of minimum value testing (evaluates the comprehensiveness of the plan) and affordability testing (evaluates an employee’s ability to pay for the plan) per ACA guidelines.
    1. Internal Revenue Code defines Minimum Essential Coverage as one of the following:
      1. Coverage under an eligible employer-sponsored group health plan, including COBRA continuation coverage and retiree coverage.
      2. Coverage under a health plan offered in the individual state Marketplace.
      3. Coverage under the following government programs – Medicare Part A and Part C; Medicaid; Children’s Health Insurance Program (CHIP); TRICARE and other military medical coverage;
      4. Veterans Affairs (VA); Peace Corps volunteer coverage; and Department of Defense non- appropriated fund health benefits.
      5. Coverage under a grandfathered health plan (coverage in which the individual was enrolled on March 23, 2010).
      6. Other health benefits coverage that the US Department of Health and Human Services (HHS) recognizes for this purpose.
    2. Any employer with more than 50 FTEs in 2016 is an applicable large employer (ALE) for 2017 which will require the filing of additional 2017 IRS forms (1094 & 1095) to identify individuals who have minimum essential coverage and those who do not. An FTE calculator can be found at https://www.healthcare.gov/shop-calculators-fte/ for your convenience.
    3. Self-insured employers with fewer than 50 full-time or FTE employees in the preceding calendar year must file an annual information return Form 1095-B to the enrollees. Self-insured employers that are applicable large employers (50 or more full-time and FTE employees) report health care coverage information on Form 1095-C.
    4. Small employers who pay for at least 50% of the health insurance premiums for employee coverage may be eligible for a tax credit as long as the insurance is purchased through the Small Business Health Options Program (SHOP) in the Marketplace.
    5. Beware! Employers who reimburse employees for their individual health insurance premiums (known as Employer Payment Arrangements) or pay the premiums on the employees’ behalf may be subject to hefty penalties. Strict rules apply.
    6. Employers with flex plans (FSAs): caution. The full amount an employee elects to have taken out of pay for the year must be available at the start of the year. The employer is liable for any amount needed that has not yet been paid in, and the employee need not pay it back. The IRS says the FSAs are equivalent to insurance. The 2017 salary reduction contribution limit is $2,600.

Compliance with the ACA provisions can be complex so consult with Thoresen Diaby Helle Condon & Dodge, Inc. for guidance.

Please visit our website at www.tdhcd.com or follow our electronic newsletter for updates. If you are not currently receiving our newsletter, please let us know and we will add you to our mailing list.

TDHCD has forms available to assist you with your 1099 preparation. Please call if you have any questions. We look forward to assisting you.

SUMMARY OF WAGES AND PAYMENTS INCLUDED (EXCLUDED) AS REPORTABLE INCOME

NOTE: The W-2s and 1099-MISC are due to the recipient AND THE GOVERNMENT AGENCY (with Forms W-3 or 1096) no later than January 31, 2018. A penalty may be assessed for filing late or if forms are filed with incorrect information. Other Forms 1099 (i.e. INTEREST, DIVIDEND) are due to the payee not later than January 31 and must be filed no later than February 28 (March 31 if filed electronically) to the Internal Revenue Service.

FORM W-2

Included Items:

  • Total wages, bonuses, prizes and awards paid to employees during the year.
  • Value of group term life insurance coverage in excess of $50,000 for employees.
  • Personal use of employer’s vehicle to the extent that the employer is not reimbursed by the employee for the value of the personal use. Please contact us if you need assistance with this calculation.
  • Accident, health, and dental insurance premiums paid by S Corporations for greater than 2% shareholder-employees.
  • Gifts of cash, gift certificates or similar items of readily convertible cash value.
  • Employee contributions to Archer Medical Savings Accounts.
  • Contributions for qualified long-term care services if the coverage is provided through a flexible spending or similar arrangement.
  • Employee contributions to a Health Savings Account not made through a cafeteria plan.
  • Certain payments of sick pay.
  • Total tips reported by the employee to the employer (not allocated tips)
  • Employee business expense reimbursements under a non-accountable plan.
  • There are others such as moving allowance, education, etc… Please call if you have any questions.

Excluded Items:

  • Employer contributions to pension and profit sharing plans.
  • Life insurance premiums up to $50,000 of group term life insurance.
  • Accident, health, dental, and disability insurance premiums that are part of a group plan (except for greater than 2% shareholder-employees of S Corporations). Employees should receive Forms 1095-B and/or 1095-C.
  • Personal use of employer’s vehicle to the extent that the employer is reimbursed by the employee for the value of the personal use.
  • Employer payments for dependent care assistance (reported in box 10 on Form W-2).
  • Meals furnished to an employee on the employer’s business premises for the employer’s convenience.
  • Gifts of hams, turkeys, and other merchandise of nominal value distributed to all employees at Christmas or comparable holiday.
  • Employee business expense reimbursements under an accountable plan.

FORM 1099-MISC

All payments to individuals, partnerships, and LLCs taxed as partnerships or single-member LLCs receive 1099s per the following guidelines:

  • $600 or more of payments for services performed for your trade or business by people not treated as employees. Examples: fees to subcontractors or directors, and golden parachute payments.
  • $600 or more in rents or royalty payments, prizes and awards, other income payments, and medical health care payments in cash or property.
  • $600 or more to an attorney in connection with legal services, including payments to corporations.
  • For each person to whom you have paid at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
  • Any fishing boat proceeds. In addition, use Form 1099-MISC to report direct sales of at least $5,000 of consumer products to a buyer for resale.
  • Each person from whom you have withheld any Federal income tax under the backup withholding rules regardless of the amount of the payment.
  • Accrued wages and vacation pay due to a deceased employee and paid after the year of death.
  • Amounts of forgone interest attributable to a below market loan.
  • Crop insurance proceeds.

Excluded Items:

  • Payments to a corporation, except for attorney fees.
  • Payments for merchandise
  • Payments of rent to real estate agents
  • Wages paid to employees (reported on Form W-2)
  • Business travel allowances paid to employees (reported on Form W-2)
  • Scholarships
  • Deceased employee’s wages paid in the current taxable year (should be included on W-2)
  • Cancelled debt (but see Form 1099-C if you are in the business of lending money and you forgave a debt during 2016)