WD-40 for W-2, 3, 9
Dear Erin,
I’m sorry I forgot to tell you this earlier. You have some tax documents that need to go out this Wednesday.
Yep, there are a few things that companies need to send out annually by January 31, all having to do with people who need to start preparing their personal income taxes. We’ve all got “April 15” on the brain when it comes to taxes, and that’s true for when you need to file your personal income taxes. But as small business people, we’ve got a few deadlines way ahead of April 15.
You know I’m not the “handy” one around the house; that’s Dad’s job. But I do know that WD-40 helps when you need to get something “unstuck.” So let me apply some WD-40 tax information and start un-sticking all the W’s you need to sort out to meet this January 31 deadline.
Bottomline: anyone who has done paid work for your organization (nonprofit or for-profit) needs to get a tax document from you by January 31. You can mail it so that it is post-marked by Jan 31 or you can email it on or before Jan 31. By the way, let’s just focus on individuals, not businesses or vendors you might have paid.
You either paid a person as an employee or as an independent contractor.
Employees get W-2
If you have employees, and pay them on a regular payroll schedule, each employee must receive their W-2 by January 31. A W-2 is an Internal Revenue Service (IRS) form called the “Wage and Tax Statement” that is used to report wages paid to a single employee in the prior calendar year. It will include the employee’s gross wages, tips and other compensation (like a bonus) as well as the amount of taxes withheld by the employer and paid to the federal and appropriate state governments. There’s some more stuff on it - call if you want to go box by box.
When you use a payroll service to pay people for you, like ADP or Gusto or even a local accounting firm, the payroll service will create the W-2s and usually send them out as well. When you are doing this on your own, which I did when our nonprofit was really small - only 2 employees - I did it myself. Better if you don’t have to do it yourself, as payroll is super complicated given all the kinds of taxes that need to be withheld and paid by the employer.
Either way, every employee of your organization needs that W-2 to file their individual taxes and you are legally required to get it to them by Jan 31.
IRS gets W-3
The W-3 form is simply the aggregate of all the W-2s you sent out. So, if you have two employees, each of whom get a W-2, the W-3 is one form that sums all the boxes on the W-2s for both employees. If you have 100 employees, it’s still one form that sums all 100. Doesn’t matter how many employees; one W-3.
You need to send the W-3 to the IRS as well as a copy of all the W-2s. Good news: you do not have to send anything to the State governments. Just the Feds.
The W-3 must also be sent electronically or postmarked by Jan 31. If you are using a payroll service that sends the W-2s, it will send the W-3 as well. At least it should. Check.
Independent Contractors get 1099
To send a 1099, you should have a W-9 on file.
What about independent contractors? I know you are familiar with this as a free-lance dancer, choreographer, lighting design artist and tech person. You already have been receiving 1099 forms from other organizations for whom you have done paid work in the past few years. Did you know that you are supposed to receive them by Jan 31? Yep. And, as the organization now hiring your own freelance artists, you have to send them by Jan 31.
In recent years, the IRS has clarified the rule to say that you should be sending a 1099-NEC form. In fact, there are quite a few other types of 1099 forms: 1099-INT for interest received from a bank, 1099-DIV for stock dividends received, 1099-K, 1099-R, 1099-MISC… Don’t worry about them right now; we’re talking about the 1099-NEC. “NEC” stands for non-employee compensation.
(Actually - let me make a special note on 1099-MISC because you are in dance. Use that one for anyone (a person, not a corporation) to whom you’ve paid rents or royalties. That one’s not due until February 28.)
Here’s the rule: you need to send a 1099-NEC by Jan 31 to any person (also LLC or partnership, but not corporation - you probably don’t have to worry about that right now) to whom you have paid $600 or more during the calendar year. Note that it is the SUM of all payments, not a single payment of $600 or more.
You also have to send that information to the IRS, using form 1096. Much like the W-3 form, above, 1096 is simply a single form that you use to send the IRS the sum totals of all the 1099s you issued. This also needs to be filed by Jan 31.
For my nonprofit, I use an online service to do all of the 1099 reporting. After I input all the information, it automatically sends each independent contractor their 1099 by email and it sends the 1096 to the IRS. There is a small fee for doing it - a few bucks per 1099. But I love it - and if/when your independent contractor calls you at 3pm on April 15 in a panic asking for the 1099 that they lost or claim to have never received, you can easily shoot it to them via email that minute from the app’s website. Text me if you want the name of the one I use.
Whether you are using an online filing service or ran to Office Depot, bought the forms, and are filling them out by hand, here’s what you need:
Independent Contractor’s legal name
(Or, if it’s a partnership or an LLC, you’ll know the name of the organization)
Social Security Number if it’s a person; EIN (employer identification number) if it’s a partnerhsip or LLC
Amount of the total payments
Mailing Address
Email address if you are going to use a service that emails the forms. Note that if you do not have the email address, you can still use an online service, but give yourself a few extra days because that service will mail the 1099 and you want to get it in the mail a few days before Jan 31 if possible.
And… this is why you need to get the W-9s.
Independent Contractors Give YOU the W-9
Before you pay anyone as an independent contractor, you should get a W-9 from them. This is a super-easy IRS form that asks for their name, social security number, address and signature. Beware: it does not have a line for email address, so if you need that, you’ll have to get it separately.
Do you really need a W-9 for everyone? I don’t know if anyone is going to check. I don’t know if it is the form per se that is required, but getting the social security number form the person is absolutely required. You do need this information (name, address, social), so might as well get it on the right form from the get-go. (If you don’t have the W-9 today and need to file the 1099 by Wednesday, just call the person in the next two days and get the info. And then, get the W-9 on file if you plan to work with them in 2024.)
The W-9 also has a section for the person you are paying to check whether you are paying them as a (1) individual, (2) LLC, (3) partnership or (4) corporation. If they checked individual, LLC or partnership, you need to send them a 1099 for compensation >= $600. If they checked “corporation,” you do not. Note that nonprofits are corporations, so that might make things a bit easier for you in the arts….and I don’t think you’re going to encounter too many partnerships or LLCs in your work, but you never know. So get that W-9.
The $600 thing
Okay, so technically, everyone is supposed to report all of their income to the IRS, even if they only received $500. But that’s their problem, their decision. You as the person who paid them are only required to report to the IRS aggregate payments of >= $600. So, since the IRS won’t be getting the information from you as the payor for payments of less than $500, the IRS doesn’t actually have any information with which to go after someone who chose not to report a $500 payment.
The reverse is true. Since you have to send not only the 1099-NEC to the IRS but also the 1096 summary and a copy of all the 1099s, you ARE giving the IRS all of the information they need to go after someone who does not report your payment as income. THAT IS THEIR PROBLEM. Your problem is to simply comply with the law and report all payments of >=$600 to individuals, partnerships and LLCs. You are not here to provide tax advice to anyone - just to make sure you take care of business on your end.
So - did that un-stick things a bit? If not, call me and let’s walk through it. (Or, if you are reading this and you are NOT ERIN, call your payroll provider and/or accountant.) Frankly, as long as you have a (formal or DIY) accounting system that allows you to pull up who you paid how much last year and have the social security numbers of the people you paid, I promise you this is easier to do than it seems from a blog post this lengthy!
Love, Mom
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Disclaimer: I am not an accountant or a lawyer! If you are reading this an you aren’t Erin, consult a professional or ask you own mom!
