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2011 Changes: A Preview

Every year brings with it new changes related to W-2 & 1099 forms and reporting requirements. Here is a sneak peek at some of the key changes and how they will affect your business.

W-2s & 1099s

  • The penalties for failure to file correct information returns and failure to furnish correct payee statements have increased. These penalties will be adjusted for inflation every 5 years after 2012.

W-2

  • The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 has temporarily reduced the rate of social security tax withholding (for employees only) from 6.2% to 4.2% for wage payments made in 2011.
  • Two new codes have been added to box 12 of the 2011 Form W-2:
    • Code DD is used to report the cost of employer-sponsored health coverage. However, this reporting will not be mandatory for 2011.
    • Code EE is used to report designated Roth contributions under a governmental section 457(b) plan.

W-3

  • To improve document matching compliance, box b of the 2011 Form W-3 has been expanded to include a new section, Kind of Employer, which contains five new checkboxes. Filers are required to check one of these new checkboxes.

W-2 & W-3

  • The advance earned income credit payment is eliminated for tax years beginning after December 31, 2010. Therefore, box 9, Advance EIC payments, has been deleted from the 2011 Form W-2 and W-3.

1099s

  • The pilot program for truncating an individual's identifying number on paper payee statements has ended. Filers must show the payee's complete identifying number on all copies of the form.

1099-B

  • New boxes have been added to Form 1099-B for reporting the date of acquisition (box 1b), cost or other basis (box 3), amount of loss disallowed due to a wash sale (box 5), whether the property sold is a noncovered security (box 6), amount of gain or loss (box 7), and whether the gain or loss is short-term or long-term (box 8). These new boxes must be completed when reporting sales of securities unless box 6 is checked.
  • There are new rules for:
    • How many forms must be filed for each transaction
    • Short sales of securities
    • Foreign currency
    • Transfer statements
    • Issuer returns
    • Use of transfer taxes and option premiums in determining gross proceeds, and
    • Basis reporting.

1099-K

  • Form 1099-K, Merchant Card and Third Party Network Payments, is new for 2011 and is used by payment settlement entities to report merchant card payments and third-party network transactions to participating payees.

1099-R

  • The blank box formerly to the left of the box labeled "1st year of design. Roth contrib." has been numbered box 10 and labeled "Amount allocable to IRR within 5 years". Other boxes on this form have been renumbered to accommodate this change.

1099-SA & 5498-SA

  • Excess employer contributions (and the earnings on them) withdrawn from employee HSAs by the employer should not be reported as a distribution on Form 1099-SA or as a contribution on Form 5498-SA.