Payroll year-end forms update for 2020: Is your team ready?

This year-end will be like no other for Payroll. Check out this update for Payroll year-end forms to keep your company in compliance.

No matter what the form, there’s something new for 2020.

So is Payroll ready for everything coming its way?

Here’s a quick look at what tasks they can accelerate and what tasks to keep in “idle mode” as companies wait for the green light from IRS.

Form 941

As if a mid-year change to the Form 941 (revision date April 2020) wasn’t unusual enough, IRS is at it again for the third quarter.

The latest round of changes (revision date July 2020) provides a way for your company to report the employee Social Security tax deferral.

It’ll be similar to reporting the employer deferral, IRS said during its September Payroll Industry Call.

For Line 13b:

• the April 2020 form says “deferred amount of the employer share of the social security tax,” and
• on the July 2020 version, the IRS reworded the line to be “deferred amount of social security tax.”

Employers would use Line 24 to specify how much of the tax was for the employee portion.

Form W-2

For the first time, you can opt to truncate Social Security numbers (SSNs) on Form W-2. You can use “*” or “X” in place of the first five digits of the SSN.

You can truncate SSNs on Copy B, which employees send to the IRS. You can’t do it on Copy A, to be filed with SSA, or on Copy 1, to be filed with state, city and local governments.

As for Copy 2, which employees send to their state, city and local governments, now’s a good time to check on what’s allowed. Some states have said they won’t accept anything other than the nine-digit SSN.

Looking at specific boxes on the W-2, here’s the latest:

• Box 14: If your company provided paid leave to employees under the Families First Coronavirus Response Act during 2020, indicate which types of leave in Box 14 or you can provide employees with a separate statement.
• Box 12: Use Code P only for moving expense reimbursements paid directly to certain members of the U.S. Armed Forces.
• Box 4: Employers deferring the employee portion of Social Security tax may be looking for clarification on Box 4. Guidance is coming, according to the IRS.

Form 1095-C

Form 1095-C had to undergo revisions to account for a 2019 reg change that took effect at the start of 2020.

That is, employers can offer employees a new benefit: individual coverage health reimbursement arrangements (HRAs).

The just-finalized form includes these new aspects:

• eight new codes related to employer’s offers of coverage for Line 14, and
• the addition of Line 17, which is for the employee’s ZIP code.

Form W-4

It seems like a long time ago that the IRS issued the revamped Form W-4 intending to make withholding more accurate, but inadvertently creating some confusion.

That’s how this unprecedented year kicked off for Payroll.

If there were ever a year-end to encourage employees to submit a new W-4, it’s this one. With the deadline for filing the 2019 Form 1040 being bumped back to July 15, 2020, some employees could have been under-withheld in 2019 without realizing that until mid-2020.

Consider also providing employees with FAQs to head off questions unique to this year. Unemployment compensation? Taxable. Stimulus checks? Not.

Due to the tax implications of the new federal form, some states – Idaho, Rhode Island, South Carolina, Nebraska and others – unveiled their own withholding certificates for the first time. So be sure you’re giving employees the correct forms.

Form 1099

Ready to go back to the ‘80s? That’s the last time employers used Form 1099-NEC. Now your company will need to use it again.

In the 2020 version, Box 1 is for nonemployee compensation (NEC) and/or nonqualified deferred compensation. Backup withholding of federal income tax goes in Box 4.

The form reappeared because the Protecting Americans from Tax Hikes Act of 2015 required NEC to be filed by January 31 and eliminated the automatic 30-day extension.

The changes involving NEC led to some necessary tweaks to 1099-MISC. One example: Box 7 is no longer for NEC. Instead, it’s for direct sales of $5,000 or more.

As for filing the 1099, the Taxpayer First Act of 2019 had authorized the IRS to issue regs reducing the electronic filing threshold from:

• 250 to 100 for tax year 2021, and
• 100 to 10 for future tax years.

But the threshold will remain unchanged until further notice, IRS recently said.

Form 941-X

If the new tax credits from 2020 flew by in a blur during an earlier quarter, Form 941-X will give you the chance to claim those.

The form, revised July 2020, adds more than a half-dozen entries for tax credits including the:

• employee retention credit, and
• paid sick leave and paid expanded family and medical leave credits.

Use a separate 941-X for each quarter that needs correcting.