As part of the Protecting Americans from Tax Hikes (PATH) act, passed at the end of 2015, new deadlines were instituted for Forms W-2 and 1099-MISC, along with penalties for failure to comply. For forms reporting income from 2016, these must now be provided to both the recipient and the federal government by January 31, 2017. Previously, the law allowed these forms to be provided to recipients by February 1st, and the federal government by March 1st. This change is not only for 2016, but for all years going forward.
The penalty for failing to file has also been increased to $50-520 per Form, depending upon the degree of lateness, up from $30-250. More importantly, the penalty has been expanded to include errors over $100 of income, or $25 of withholding. Filing with inaccurate information to meet the deadline, and amending afterward, will still result in penalties under the new regime.
These changes are part of an effort of the IRS to combat identity theft. One of the standard methods developed to defraud the government by this industry was to obtain a name and social security number, then file in the opening days of the filing season with entirely fictitious income and withholding, requesting a refund of several thousand dollars. Committed to a policy of timely refunds, with nothing to compare the information to, the IRS would previously accept the fraudulent tax return and send the requested refund. As part of an effort to combat this, the IRS will be attempting to match wage and non-employee compensation information before sending out refunds. To do this, they require forms to be filed with their office sooner, and accurately. However, this does impose a higher administrative burden on businesses required to file these forms.
If you have any questions, or would like assistance in timely filing these Forms, please feel free to contact us for a consultation.
Written by Damien Falato, CPA, MST, CGMA, Tax Director