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3 Business Tax Forms With Tricky Reporting Changes in 2021: A Guide for Business Owners

Posted: 30 Dec 2020 08:59 AM PST

A newly revived Form 1099. New responsibilities for reporting Covid-19 credits, deferrals, and paid leave. Between these changes to business tax forms and IRS reporting requirements along with everything else going on, let's just say you have quite a few things keeping you busy at the beginning of 2021.

If you want to get a head start, read up on these changes now.

3 business tax forms with tricky reporting changes in 2021

You want 2021 to be your year, the year your business doesn't have to struggle to stay afloat. So don't get tripped up over something as avoidable as changes to the way you report employee taxes and wages, contractor wages, or employer taxes.

The forms with the tricky reporting changes in 2021 include:

  • Form 1099
  • Form W-2
  • Form 941 (or 944)

Let's dive right into this. The sooner you know, the sooner you can get back to business—your business.

1. Form 1099

So, why did the 1099 make my list of tricky reporting changes? Well, it's not that it's terribly tricky, but it does have a trick up its sleeve, if you will. Form 1099-MISC magically disappeared—when it comes to reporting independent contractor payments, that is.

Now, report nonemployee compensation on Form 1099-NEC, Nonemployee Compensation. That means you need to break out the 2020 form if you pay contractors throughout tax year 2020.

Form 1099-MISC, Miscellaneous Information, is still around for reporting other types of 1099 payments, like rent, prizes and awards, payments to an attorney, etc.

So if you make both types of payments (miscellaneous payments and nonemployee compensation payments), use both Form 1099-NEC and Form 1099-MISC. And before you habitually go for a Form 1099-MISC to report nonemployee compensation, figuratively give yourself a slap on the wrist and reach for Form 1099-NEC instead.

This shift back to Form 1099-NEC (yes, back—those of us "old folks" will remember it was last used in 1982) isn't related to Covid-19. Until the IRS decides otherwise, this will be the new form for reporting nonemployee compensation for years to come.

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2. Form W-2

Contractor form? Check. Employee form? Here we go . . .

Each year, you use Form W-2, Wage and Tax Statement, to report your employees' taxes and wages. Your reporting requirements tend to remain the same—until now.

Due to Covid-19, employees may have deferred their Social Security tax and/or received emergency paid leave (sick or family). You need to report these on Form W-2.

So, if you gave employees paid sick or family leave under the Families First Coronavirus Response Act (FFCRA), include the amounts and a brief description (you can grab these from the IRS) on Form W-2.

And now for the employee Social Security deferral. I'm willing to bet this will be where some employers might get tripped up. You have to use Form W-2 to report an employee's total wages subject to Social Security tax, and after you withhold the deferred tax from your employees' wages in 2021, you have to order Form W-2 C to report it.

3. Form 941 or 944

So we've gone over contractor and employee wage and tax forms. Now here is our last tricky topic of discussion regarding important changes to business tax forms: your employer tax return form (either Form 941 or Form 944).

If you use the quarterly Form 941, you know your fourth-quarter form isn't due until January. And if you use the annual Form 944, your once-per-year form also isn't due until January. That means there's quite a bit you need to report on forms 941 or 944 in 2021. You must report deferred Social Security taxes along with claimed tax credits.

Here's a breakdown of what you need to report:

  • Tax credits
  • Deferrals
    • Employee Social Security taxes
    • Employer Social Security taxes

Also remember to report the deferred Social Security taxes you remit on the 2021 forms 941 or 944.

Checklist for conquering your reporting responsibilities

For everyone in the same boat as me, you need your checklists to stay sane. Remember to report:

  • Payments to independent contractors on Form 1099-NEC
  • Payments to other 1099 types on Form 1099-MISC
  • Paid sick and family leave you gave employees on Form W-2
  • Deferred employee Social Security tax on Form 941 or Form 944
  • Total wages subject to Social Security tax on Form W-2
  • Deferred employee Social Security tax you withheld on Form W-2 C (and 2021 Form 941 or Form 944)
  • Deferred employer Social Security tax on Form 941 or Form 944
  • Deferred employer Social Security tax you paid on 2021 Form 941 or Form 944
  • Claimed Employee Retention Credit on Form 941 or Form 944
  • Claimed paid sick and family leave tax credits on Form 941 or Form 944

RELATED: End-of-Year Business Compliance Checklist for Entrepreneurs

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