Every year brings with it new changes related to W-2 & 1099 forms and reporting requirements. Here is a sneak peek at some of the key changes and how they will affect your business.

W-2s & 1099s

• The penalties for failure to file correct information returns and failure to furnish correct payee statements have increased. These penalties will be adjusted for inflation every 5 years after 2012.

W-2

• The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 has temporarily reduced the rate of social security tax withholding (for employees only) from 6.2% to 4.2% for wage payments made in 2011.
• Two new codes have been added to box 12 of the 2011 Form W-2:
  • Code DD is used to report the cost of employer-sponsored health coverage. However, this reporting will not be mandatory for 2011.
  • Code EE is used to report designated Roth contributions under a governmental section 457(b) plan.

W-3

• To improve document matching compliance, box b of the 2011 Form W-3 has been expanded to include a new section, Kind of Employer, which contains five new checkboxes. Filers are required to check one of these new checkboxes.

W-2 & W-3

• The advance earned income credit payment is eliminated for tax years beginning after December 31, 2010. Therefore, box 9, Advance EIC payments, has been deleted from the 2011 Form W-2 and W-3.

1099s

• The pilot program for truncating an individual's identifying number on paper payee statements has ended. Filers must show the payee's complete identifying number on all copies of the form.

1099-MISC

• Payments of $600 or more for certain rental property expenses made by persons receiving rental income from real estate are to be reported on Form 1099-MISC.

1099-B

• New boxes have been added to Form 1099-B for reporting the date of acquisition (box 1b), cost or other basis (box 3), amount of loss disallowed due to a wash sale (box 5), whether the property sold is a noncovered security (box 6), amount of gain or loss (box 7), and whether the gain or loss is short-term or long-term (box 8). These new boxes must be completed when reporting sales of securities unless box 6 is checked.
• There are new rules for:
  • How many forms must be filed for each transaction
  • Short sales of securities
  • Foreign currency
  • Transfer statements
  • Issuer returns
  • Use of transfer taxes and option premiums in determining gross proceeds, and
  • Basis reporting.

1099-K

• Form 1099-K, Merchant Card and Third Party Network Payments, is new for 2011 and is used by payment settlement entities to report merchant card payments and third-party network transactions to participating payees.

1099-R

• The blank box formerly to the left of the box labeled "1st year of design. Roth contrib." has been numbered box 10 and labeled "Amount allocable to IRR within 5 years". Other boxes on this form have been renumbered to accommodate this change.

1099-SA & 5498-SA

• Excess employer contributions (and the earnings on them) withdrawn from employee HSAs by the employer should not be reported as a distribution on Form 1099-SA or as a contribution on Form 5498-SA.

  Well I’m sure you’ve heard by now, the Social Security Administration announcement of a pay increase of 3.6 percent.  They announced it last Wednesday, offering a measure of comfort to millions of retirees and disabled people, many who have seen their retirement accounts dwindle, home values drop and out-of-pocket medical costs rise in the years since their last raise in 2009! 

  Starting in January 2012, 55 million Social Security recipients (about 1 in 5 people) will get increases “averaging” $39 a month, or just over $467 for the year. In December, more than 8 million people who receive Supplemental Security Income, the disability program for the poor, will get increases “averaging” $18 a month, or about $216 for the year.

  The raise is welcome and certainly long overdue!  But the good news didn’t last for long, because at almost the same moment, an increase in Medicare premiums announcement was leaked, which will eat up most of it!  For some, higher 2012 Medicare Part B premiums, which cover doctor visits and are automatically deducted from monthly Social Security Payments, could wipe out as much as a fourth of their raise from Social Security, according to projections by the trustees who oversee the programs.

  So, “on average”, the anticipated 3.6 percent increase will only amount to about $29 extra per month after the increase in Medicare premiums.  But still any increase is better than none as Cost of Living Adjustments (COLA) have certainly continued to go up and up. 

  The higher inflation index also means that workers will pay more into the Social Security System.  Next year, the Social Security tax will be levied on the first $110,100 of a person’s wages, up from $106,800 this year.

  We’ll keep you posted –

  Cathy E. Seymour