As 2022 comes to a close, here are a few payroll and 1099 reminders of tasks you will want to consider over the next few weeks.
The following items should be included in your year-end payroll and Forms W-2. These can be included on your regular payroll run or called in as a special payroll.
Personal use of a company vehicles is considered a benefit to the shareholder or employee and an amount representing that personal use is grossed up for taxes and reported as wages. This includes those that have use of a company vehicle outside of business hours and for mileage driven to and from work. The calculation for how much PUCA to report in wages requires both personal and total mileage, the fair market value of the vehicle being driven, the number of months it is driven for, and the lease inclusion value.
Shareholder health insurance is required to be reported for S corporation shareholders who own 2% or more of the company. The amount reported in boxes 1 and 14 on Form W-2 is equal to the amount the company paid on their behalf. This amount is not taxable and is reported as both income and a deduction on the shareholder’s individual income tax return.
Group-term life insurance provided to an employee in excess of $50,000 is taxable to the employee and should be included in their payroll at year-end. The benefit is calculated on the excess over $50,000 and the employee’s age. This benefit is reported as box 1 gross wages on Form W-2 and is subject to Social Security and Medicare taxes only.
Bonuses are a great way to incentivize and reward employees. While 2022 bonuses can be accrued at year-end, they must be paid by March 15, 2023 in order to be deductible on the 2022 business income tax return. You will need to determine what type of bonus is paid in order to correctly calculate overtime for non-exempt employees, as this could have an effect on the employee’s wages once the bonus is paid. There are two types of bonuses – discretionary and non-discretionary. Discretionary bonuses are those with no promise or plan in place (i.e. holiday bonuses, referral bonuses, and gifts). These bonuses are excluded from a non-exempt employee’s regular rate of pay when calculating their overtime. Non-discretionary bonuses are those with a promise or plan in place (i.e. commissions). Non-discretionary bonuses are included in a non-exempt employee’s regular rate of pay when calculating their overtime.
Forms W-2, W-3, 1094-C and 1095-C report employee related information. You will want to confirm that you have the most up-to-date information, such as addresses, so that these forms are received by the current or prior employee timely. Forms W-2 and W-3 are due to employees and to the Social Security Administration by January 31, 2023 regardless of whether filing on paper or electronically. Many of the state agencies have also moved their deadlines to this earlier date. Please check with your specific revenue departments to verify. Forms 1094-C and 1095-C are due to employees by February 28, 2023 and to the Internal Revenue Service by February 28, 2023, if filing on paper, and by March 31, 2023, if filing electronically. Failure to file these forms will result in a penalty to be assessed. A penalty may also be assessed if you are required to file more than 250 information returns and do not file them electronically.
Forms 1099-NEC, 1099-MISC, 1099-INT, 1099-DIV should be issued for payments to individuals, partnerships, and disregarded entities. Payments for non-employee compensation of $600 or more during the year should be reported on form 1099-NEC. 1099-INT and 1099-DIV should report amounts paid for interest and dividends. Other payments will be filed on form 1099-MISC. Payment types to include on your 1099-NEC and 1099-MISC include:
- 1099-NEC
- Services performed in the course of trade or business, including subcontractors, independent contractors, or directors
- CPA Services
- Consulting Services
- Repair/Maintenance Services
- 1099-MISC
- Rents
- Royalties
- Other Income
- Medical and health care payments
- Crop Insurance Proceeds
- Gross proceeds paid to an attorney, even if they are an S or C Corporation
A best practice in preparation for year-end is to review vendor and employee files. Every vendor file should include Form W-9 signed by the vendor verifying its address, taxpayer identification number, and federal tax classification. This form will help to determine whether the recipient is required to receive a 1099, as well as verifying the legal name, address, and identification number. If the above information is reported incorrectly, a notice will be issued by the IRS. These forms should be updated at least every three years to allow for updates to addresses and ownership. If you are missing any information, December is a great time to get your records updated so you don’t have to chase after it in January.
All 1099 recipient forms should be mailed no later than January 31, 2023. Forms 1099-NEC are due to the IRS by January 31, 2023. Forms 1099-MISC, 1099-DIV, and 1099-INT are due to the IRS by February 28, 2023, if filing by paper, and by March 31, 2023, if filing electronically. Penalties will be assessed for the failure to file correct information returns by the due dates and for the failure to furnish correct payee statements. A penalty may also be assessed if you are required to file more than 250 information returns and do not file them electronically.
A few other reminders to prepare for 2023:
- The social security wage base that is taxed at 6.2% will increase to $160,200 in 2023, up from $147,000 for 2022.
- The annual maximum that can be contributed to 401(k) and 403(b) will increase to $22,500 in 2023, up from $20,500 in 2022. The maximum catch-up contribution for participants age 50 or over also increases in 2023 to $7,500, up from $6,500 in 2022.
- The annual maximum that can be contributed to an IRA is $6,500 for 2023, up from $6,000 in 2022. The maximum catch-up contribution for participants aged 50 or over remains unchanged at $1,000.
- The dollar limitation for contributions to §125 flexible health spending arrangements is $3,050 for 2023, up from $2,850 in 2022.
Please contact your MarksNelson advisor if you have any questions or need assistance as you close out 2022 year and prepare for 2023.
