Year-End Payroll and 1099 Reporting

Year End Payroll & 1099 Reporting

It’s that time of year again to begin to prepare for the 2018 tax reporting season. If you are a business owner, be sure to draw a big red circle around the date January 31, 2019, on your calendar:

Please be aware the filing deadline for employers to submit forms W-2 to Social Security and certain forms 1099-Misc reporting non-employee compensation such as payments to independent contractors is January 31, 2019.

S-Corporation Reasonable Compensation

The IRS is also looking closely at S corporation compensation practices. In particular, auditors’ eyebrows are being raised if salaries paid by an S corporation to its principal owner or owners look suspiciously low. A review of W-2 income and total distributions received by the S corporation owner-employee during the year may be in order for many businesses.

PLEASE CALL US NOW IF YOU NEED A REVIEW OF YOUR PAID WAGES AND/OR TAX PLANNING.

W-2’s

If your company is an S-Corporation we will need the total health insurance premiums paid by the company by January 6, 2019, for all 2% or greater shareholders per Notice 2008-1, as required. If you prepare your own payroll or use another outside service you will need to provide this information too on the W-2s.  Here is the latest IRS statement on Form W-4.

In addition, please check your employees’ addresses, names, Flex Spending, SIMPLE, 401(k) plan deductions, etc.  and give us any changes that might have occurred during the year.

1099’s

File Form 1099-Misc, Form 1099-Interest and Form 1099-Rent for each person or company to whom you have paid during the year in the course of your trade or business:

  • At least $10 in royalties, interest or broker payments in lieu of dividends or tax-exempt interest.
  • At least $600 in rents, services, (including parts and materials), prizes and awards, other income payments, medical and health card payments, crop insurance proceeds, cash payments for fish you purchase from anyone engage in the trade or business of catching fish, or, generally, the cash paid from a principal contract to an individual, partnership or estate.
  • Payments to an attorney.

EXCEPTIONS: Generally payments to a corporation, guaranteed payments, payments for merchandise, telegrams, telephone, freight, storage and similar items.

Use Form W-9 to gather the information you will need for the 1099. As you begin to work with new individuals in 2019, we strongly encourage you to have a form W-9 completed before you send any payments to individuals. Threat of backup withholding (at 28%) usually works to get the information you need to be compliant. As long as the supplier is active, you need to store the W-9 form. If the supplier is not active, the W-9 needs to be kept on file for three years after their last return is filed with the IRS.

There are many state and federal laws that define an employment relationship and determine whether an individual who performs services is an employee or an independent contractor. IRS Publication 15-A, “Employer’s Supplemental Tax Guide,” has more information on determining whether an individual is an independent contractor or an employee. In addition, the IRS is aggressively pursuing entities who misclassify an employee as an independent contractor and is assessing significant penalties, interest and back taxes to the employer. In the simplest of definitions, if you can control the “contractors’” work (i.e., what will be done and how it will be done), the contractor is probably an employee. An independent contractor agreement will not support the classification during an IRS or State examination. In addition, states are pursuing the same situation as states are losing out on workers compensation and unemployment premiums. WE STRONGLY URGE YOU TO REVIEW YOUR INDEPENDENT CONTRACTOR/EMPLOYEE STATUS.

QuickBooks Clients

QuickBooks supports Version 2019, 2018, 2017, and 2016 at the present time. We will support QuickBooks Versions 2016 through 2019 and accept client data from version 2010 to 2015, however, we will convert 2015 and prior data files to a current version of QuickBooks and you will have to manually enter any year-end journal entries.

2019 Payroll Items of Note

The Social Security and Medicare tax rates remained the same at 6.2% and 1.45% respectively for all employees in the U.S. and Puerto Rico. In addition to withholding Medicare tax at 1.45%, you must withhold a 0.9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. There is no employer share of Additional Medicare Tax.

The Social Security wage base for 2019 (the maximum amount of annual salary subject to Social Security taxation) is $132,900. This is an increase from the 2018 base which was $128,400.

2019 Colorado Unemployment Insurance tax rates

If you are a Lang Allan & Company payroll client please forward to us your 2019 Colorado Unemployment Insurance Rate Notice (an example of this letter is here) you received during November 2018. The wage base taxable to employers has increased from $12,600 to $13,100 for 2019.

2019 Minimum Wage and Notification

Colorado voters decided to increase the state’s minimum wage with the passage of Amendment 70 in 2016. Minimum wage will increase in Colorado from $10.20 to $11.10 an hour effective January 1, 2019. The amendment then requires the state to raise the minimum wage 90 cents every year until 2020, when the minimum wage reaches $12 an hour. As a result, please review your current wages paid to employees and you MUST display the minimum wage notice. For additional information, read more.

2019 401(k) Limitations

401(k) contribution limit was increased from $18,500 in 2018 to $19,000 for 2019. The catch-up contribution limit for employees aged 50 and over who participate in a 401(k) remains unchanged at $6,000.

2019 HSA Contribution Limits

The HSA contribution limit for an individual is $3,500 and a family is $7,000, including both the employER and employEE contribution. The HSA catch-up contribution for those that are age 55 or older is $1,000.

Great Colorado Payback

Checks that have not cleared are required to be submitted to the State of Colorado under the Great Colorado Payback program. Please note other states have similar programs.

New Hire Reporting

As a reminder, when hiring any new employees, you must forward a copy of form W-4 to the State of Colorado. You can fax this form to 303-297-2595 or mail. For additional information, read here.

Colorado Employment Verification Law

For the term of employment for each employee, the employer shall keep a written or electronic copy of the documents required by completion of the Form I-9, Employment Eligibility Verification. For additional information, read here.

Colorado Sales Tax

Be sure to check the Colorado Department of Revenue website by January 5, 2019 for any sales tax rate changes and the rules and regulations. The rate changes are updated twice a year in January and July. For additional information, read here.

Colorado Use Tax

Consumer use tax must be paid by Colorado residents and businesses on purchases that did not include Colorado sales tax, such as those made over the Internet, by mail order, or by telephone. For additional information, read here.


Download and forward this PDF of information to any of your friends, colleagues or other business associates as this information applies to many businesses today. If you have any questions, comments or concerns with the above information, please do not hesitate to contact Adam Allan or Linda Heyburn or 303-792-9445.

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