The Internal Revenue Service (IRS) requires universities, colleges and post-secondary institutions who received “qualified educational expenses” to complete 1098-T tax forms for eligible students in the preceding tax year. As with other information returns, the form must be sent to the student by January 31. Complying with the reporting requirements for IRS form 1098-T has been a difficult process for many educational institutions. Over the past few years, the IRS has made changes to the tax form because of errors in reporting, specifically with Box 1 and Box 2. We’re going to provide an overview of those changes and solutions for being in compliance to avoid IRS penalties. Changes made to 1098-T In 2016, the IRS first introduced significant changes that required educational institutions to report payments received for qualified tuition and related expenses (QTRE) rather than the amount billed to students. Prior to these changes, educational institutions were allowed to provide students with payments received (Box 1) and the amount billed (Box 2) for QTRE. The problem was that individual filers accidentally misreported their college expenses when benefits like scholarships were involved. Unfortunately, many people filing were not subtracting any scholarship amount from the total amount billed, leading to inaccurate reporting of funds the university received. Now, colleges and universities are no longer able to report amounts billed for QTRE in Box 2 on 1098-T forms. They must report payments in Box 1. The IRS is now enforcing reporting changes and as Box 2 is grayed out. These changes mean universities must now redesign their system to start reporting via Box 1 only. Find out more on 1098 forms here. Recommendations for completing the form A lot of educational institutions have struggled with these changes due to in-house printing and reporting on legacy systems. To comply with IRS requirements, schools should know who qualifies for a 1098-T …
What’s the New 1099-NEC for Non-Employee Compensation?
The Internal Revenue Service (IRS) has introduced a draft version of 1099-NEC, a non-employee compensation form we haven’t seen since 1982. Starting in January 2021, form 1099-NEC will replace the non-employee portion of form 1099-MISC which covers earnings for independent contractors and a wide range of payments such as rent, royalties, prizes, awards and substitute payments. The former 1099-NEC had one box to report fees, commissions and other non-employee compensation paid to vendors who were compensated at least $600 in a calendar year. However, in 1983, the IRS moved away from the 1099-NEC in favor of form 1099-MISC. The Protecting Americans from Tax Hikes Act (PATH) of 2015 made several changes to how we file taxes, including moving the due dates for reporting non-employee compensation in Box 7 on form 1099-MISC to January 31. But that caused confusion. The due date companies were required to file with the IRS was due on February 28 (paper) and March 31 (electronic). But, they also had to send workers their W-2 and 1099-MISC by January. This meant companies would have to file twice to the IRS for the same payee unless they filed everything by January 31. It also created a window where refunds could be issued before the IRS could confirm reporting income leading to fraud. Essentially, the IRS is looking to streamline the process to report non-employee compensation by reinstating the 1099-NEC. The updated form eliminates the issue of separate filing dates. However, the 1099-NEC does not eliminate form 1099-MISC. The IRS still requires you to report the miscellaneous income received during the year. It will be reported in different places on your tax return. The biggest change is Box 7 on form 1099-MISC which is now being used for direct sales of $5,000 or more. The due date for issuing the new form to taxpayers and the IRS will be February 1, 2021 (since January 31, 2021 falls on a Sunday). It can be filed either by paper or electronic …
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Benefits of outsourcing for your small business
Tax season comes around every year, and there’s no avoiding it. But does tax season usually mean that you’re spending time away from more important areas of your business that could lead to future growth? If you’re spending too much time on menial tasks for tax preparation, you might be using billable time that would be better spent elsewhere. You’ll have to do the math yourself, but if you take a close look at the hourly rates you’d bill yourself for menial tasks, pro-rate those, and compare that to the amount you’d pay for that task to be outsourced, you may find that outsourcing could help you to save enormously. Outsourcing services can help to prevent bigger disasters. With an e-filing service like eFile360, you can outsource a number of electronic tax filing needs. You’ll be able to ensure accuracy with services like TIN Checking, which prevents inaccuracies that lead to future delays, or even penalties. The same way that outsourcing can help to save you money, the error-checks that come with e-filing with eFile360 can save you from far more costly penalties. The cost to fix a tax-filing problem is usually much more costly than the prevention taken in the first place. We also provide reliable, 24/7 customer service that’s on your side whenever you need assistance. Outsource your tax e-filing and delivery needs with eFile360 and see your energies shift to other important areas of your business. By not outsourcing, you are using billable time that could be better spent elsewhere. You may also find that those resources and efforts could be better put into other areas of your business, or even money that you give back to yourself in salary. We also provide an easy-to-use self-service platform. You can pass over the e-filing work to us and ensure that your forms are submitted on-time and accurately. If you’d like to speak with one of our customer service representatives about your next tax solution, feel free to chat with us. …
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Are you paying too much for 1099-MISCs?
Your accountant could be overcharging for your 1099-MISC forms and you don’t even know it. Your accountant should never be charging you to file 1099-MISC forms for certain scenarios. If your employees are not represented correctly when filing taxes, the IRS may issue no-match letters in the future. The misrepresentation could simply be information not matching up correctly or sending the incorrect forms. If you don’t send forms at all or send them past the deadline, you could also face steep penalties. The very basic rule for distributing 1099-MISC forms is for any non-employee to whom you pay more than $600 throughout a tax year, you are required to deliver them a 1099-MISC. Any errors that cause the IRS to question where and when income was reported can delay the tax process. This means that misclassifying employees or independent contractors could lead to penalties and delays, so you may want to take a closer look at how you’re paying employees to ensure that you’re reporting their income correctly. How are third-party app transactions reported? With the introduction of third-party money transfer apps, the landscape becomes a little more confusing in terms of understanding when a 1099-MISC is required. Third-party processors complete payments via the same clearinghouse system as credit and debit card transactions, so cash-transfer apps are not considered third-party processors. You might be familiar with: Venmo Zelle Square Cash Plastiq In this case, 1099-MISC forms must be filed when you’re using cash transfer apps. Money transfer services are intended for personal use, which is different from a merchant service intended for doing business. This means that a money transfer app doesn’t send out tax information as a third-party processor does. So when using these types of apps to pay for business services, you do need to send a 1099-MISC (if the income reported is over $600). If you use third-party vendors to pay …
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What’s the difference between an independent contractor and employee?
If you’re employing both independent contractors and employees, you’ll want to know the difference between both in order to distribute tax information correctly, as well as how to prevent future IRS issues with how you handle your forms. When businesses don’t classify their employees correctly, they pay dearly (think Uber in 2016, who had to give an over $100 million payment to drivers they had misclassified as independent contractors instead of employees). While larger corporations might be more to blame for having misclassified as a means to save money, much smaller businesses might make a mistake in classifying simply by not understanding the rules. Understanding the difference between independent contractors and employees The same way that independent contractors might invest more of their time and energy into the resources they use to do the work as well as the standards of their employee (for example, when and where they work), they also invest more energy into completing their tax forms since they pay a self-employment tax. The IRS recommends that companies base their employee on three broad standards: the schedule, behavioral control, financial control, and more the type of relationship, then they will probably want to use the employee classification. Employees are then entitled to severance, workers’ compensation, and other protective measures, and have payroll taxes. One of the most important distinctions in classifications is the length of time an employee works for an employer, versus an independent contractor who might be hired on for one specific project or for a predetermined length of time (or a trial period before becoming a full-time employee, for example). The IRS once used a 21-question test that can help you to determine whether or not you have hired an employee or contractor. Some experts recommend taking a look at it if you’re still feeling lost. Once you’ve determined what types of forms you need, it’s time to file. …
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Deadlines refresher—they’re coming up!
Are you ready for this year’s tax season? As an applicable large employer (ALE), you are required to e-file if you employ 20 or more employees. Are you familiar with the changes to the tax season? The IRS has granted an extended deadline to this year’s tax season (not likely to happen again soon). Non-Box 7 1099-MISC IRS forms and ACA forms can be e-filed up to March 31st, 2020. If recipients don’t electronically access their forms, eFile360 sends the recipient a paper copy (while paper filers need to remember different dates, the IRS recommends e-filing anyway). In order to submit your forms on time, consider an electronic delivery service. With eFile360, you can ensure that your forms are e-filed on-time and accurately. Employer Correction Requests are also known as “no-match” letters,” and the Social Security Administration (SSA) has begun sending them out to employers whose records have mismatched names and Social Security Number (SSN) combinations. This follows a seven-year hiatus, prompting employers to make sure they are submitting tax forms accurately. Electronic filing dates to remember: ACA DATES IRS eFile: March 31st 1095/1094-B 1095/1094-C 1099 DATES IRS eFile: March 31st, 2020 1099‑B 1099-DIV 1099‑INT 1099‑S 1099‑R E-filing will help to reduce the hassle of tax season. In order to avoid the potential delays and hassles that could be caused by receiving a no-match letter, consider the benefits offered by TIN Checking. Before your forms are submitted, TIN Checking ensures that SSNs and names match. A simple typographical error could land you much more trouble than it’s worth. If you’re a business that files both electronically and by paper, eFile360 also provides services that can help to streamline and automate how the recipient receives their forms. In addition, it’s important to know which forms you should send. Let’s talk if you’d like to learn more about how our e-delivery tax solution can …
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