Year-End Payroll and 1099 Reporting

Year End Payroll & 1099 Reporting

It’s that time of year again to begin to prepare for the 2020 tax reporting season. If you are a business owner, be sure to draw a big red circle around the date January 31, 2020, 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, 2020.

We will be processing 4th Quarter 2019 payroll reports, W-2’s and 1099s for year-end very soon. In order to facilitate reporting with respect to the deadlines, we will need your final payrolls and payments to individuals for 2019 by January 6, 2020. Be sure to forward any payroll reporting or tax notices to Linda. She will also need your Colorado Unemployment Tax rate change notice (these are sent out in mid-November) and payroll withholding tax notices regarding deposit frequency. If you have received occupational tax booklets please forward these as well.

For those of you who are enrolled in our Lang Allan payroll service, we will need to know of any bonuses or changes in salary, etc. four days before your next payroll run. Please check with your employees of any address changes in 2019. Forward any changes to Linda. We will mail all the employee W-2s to their addresses on file for you.

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. You can schedule a meeting with Adam here.

W-2’s

If your company is an S-Corporation we will need the total health insurance premiums paid by the company by December 16, 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 2020, 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 2020, 2019, and 2018 at the present time. We will support QuickBooks Versions 2017 through 2020 and accept client data from version 2011 to 2016, however we will convert 2016 and prior data files to a current version of QuickBooks and you will have to manually enter any year-end journal entries.

2020 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 2020 (the maximum amount of annual salary subject to Social Security taxation) is $137,700. This is an increase from the 2019 base which was $132,900.

2020 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 you received during November 2019. The wage base taxable to employers has increased from $12,600 to $13,100 for 2019.

2020 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 $11.10 to $12.00 an hour effective January 1, 2020.  As a result, please review your current wages paid to employees and you MUST display the minimum wage notice. For additional information, read more.

2020 401(k) Limitations

401(k) contribution limit was increased from $19,000 in 2019 to $19,500 for 2020. The catch-up contribution limit for employees aged 50 and over who participate in a 401(k) was also increased from $6,000 in 2019 to $6,500 for 2020.

2020 HSA Contribution Limits

The HSA contribution limit for an individual is $3,550 and a family is $7,100, 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, 2020, 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 myself or Linda Heyburn or 303-792-9445.

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