The PATH Act is back for a sequel to last season’s confusion over compliance requirements, and this time, states have joined the show. For the upcoming 1099 tax season, it’s more important than ever for organizations to keep up with new deadlines and other potential surprises.
As part of the provisions of the PATH Act, the IRS last year moved some 1099 reporting deadlines up two months, which caused lots of problems for filers. The bad news is that states have now followed suit, with a large majority of states now requiring W-2 and most 1099 forms to be filed by January 31.
As reporting season approaches, the effects of the PATH Act linger on shell-shocked tax and accounts payable departments, and new guidance from the IRS remains a possibility. The agency has already warned, for instance, that there could be costly mix-ups regarding form 1099-MISC.
Getting Ready for Reporting Season
Organizations need to have their processes in order and their people ready this year in order to meet the challenges posed by the PATH Act’s requirements and unforeseen challenges that are sure to crop up in January. Fortunately, there are some steps they can take to get ready:
Get new team members up to speed. Anybody within a filing organization who wasn’t a part of the tax-reporting process in previous years needs to know what to expect. More importantly, new team members need to know their roles in the process and understand exactly what their responsibilities are.
Sending new employees unprepared into season greatly increases the risk of both errors and penalties and threatens reporting efficiency.
Stay up to date on IRS and state guidance and regulations. The IRS will not contact filers to tell them about changes to reporting requirements; it is incumbent upon the organizations themselves to stay updated.
Often, engaging with a third party is the most efficient way for filers to stay on top of compliance requirements. The third party can monitor IRS guidance and report important changes to the filing organization. With states constantly changing deadlines and requirements, a third party can be especially helpful in keeping up with updates from a large number of jurisdictions.
Continually check for name and Tax Identification Number (TIN) matches on forms. By far, the most common 1099 reporting error is a mismatch between name and TIN. Third-party tools can verify name-TIN matches before an organization files 1099s to the IRS or sends them to recipients.
A best practice is to make sure that names and TINs match throughout the year, but confirming name-TIN matches in bulk as season approaches is also an option.
Streamline a centralized tax operation. Organizations that haven’t already should ensure that they are handling tax reporting with a single team in a single location rather than by geography or by business unit.
Centralizing reporting places responsibility for success on one group rather than distributing it, and it also gives management greater visibility into the tax-reporting process. Within a central organization, individual employees or groups of employees should have clear responsibility for dealing with specific forms, such as 1099-K or 1042-S filings.
Automate tax reporting. Manual processes simply won’t keep up with the pace of reporting dictated by PATH Act and new state deadlines. Automation is critical for filing and distributing 1099 forms with the speed required by new compliance regulations.
A new Aberdeen study reveals that organizations that automate reporting are far more efficient and less susceptible to penalties and errors than those that do not.
The Benefits of Outsourcing
A tax operation updated on the latest compliance requirements and with centralized and automated processes in place is engineered to be more efficient and cost-effective, and less likely to suffer errors, than an operation that relies on manual processes and distributed reporting responsibilities.
Sovos enables organizations to get control of 1099 reporting with a wide variety of services, including:
- Sovos Compass, which offers updates to IRS compliance policies as they happen
- Name-TIN matching as part of the Sovos 1099 reporting solution
- Automated reporting solutions that effectively replace manual processes
The new world of 1099 reporting is more fast-paced and challenging than ever, and it shows no signs of slowing. Preparation is critical for any organization that wants to meet the challenges put forth by PATH Act and state requirements and avoid costly penalties.
Take Action
Watch a recent webinar on 1099 reporting season preparation for more insights on this topic.
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