Year-End Reporting

A Readiness Check for Year-End Reporting 

A new year brings important payroll and 1099 reporting responsibilities for business owners. Staying organized and informed now can save time, reduce errors, and help you stay compliant. Here are some key reminders and checklists to help streamline your payroll and 1099 year-end reporting.

Year-End Payroll & 1099 Checklist for Business Owners:

Payroll Year-End Checklist

☐ Review employee classifications (employee vs contractor).

☐ Confirm all employee information (name, SSN, address).

☐ Verify year-to-date payroll totals.

☐ Ensure all fringe benefits are properly recorded.

☐ Reconcile federal, state, and local tax withholdings.

☐ Prepare and issue W-2 forms by January 31.

☐ File Form 941 for Q4 (or Form 944 if eligible).

☐ Update payroll tax rates for the new year.

☐ Archive and back up payroll records.

1099 Year-End Checklist

☐ Review contractor payments for threshold requirements.

☐ Collect or update W-9 forms for all contractors.

☐ Verify contractor TINs and legal names.

☐ Prepare 1099-NEC forms for payments of $600 or more ($2,000 for 2026).

☐ Prepare 1099-MISC for applicable payments (rent, royalties, etc.).

☐ File 1099-NEC by February 2, 2026 (contractor & IRS copies).

☐ Provide 1099-MISC to recipients by February 17, 2026.

☐ E-file if submitting 10 or more information returns.

☐ Store and archive backup documentation.

General Compliance 

☐ Review updates to IRS rules and thresholds for the new year.

☐ Reassess payroll software or providers for efficiency.

☐ Conduct a worker classification audit.

☐ Confirm state unemployment tax rate changes.

☐ Verify all deadlines for federal and state filings.

Beyond completing the checklists, business owners should also be aware of payroll management and year-end reporting requirements, including compliance obligations, required forms, and important filing deadlines. The following section highlights these key considerations.

1 – Payroll Taxes and Reporting

• Federal Insurance Contributions Act (FICA):
  • Social Security: Employers and employees each contribute 6.2% of earnings up to a limit. For 2026, the maximum earnings subject to Social Security tax is $184,500.
  • Medicare: Employers and employees each pay 1.45% on all earnings. There is an additional 0.9% Medicare tax for employees earning more than $200,000.
• Federal Unemployment Tax Act (FUTA):
  • Employers must pay FUTA taxes to fund unemployment compensation. Employees are not required to contribute. The FUTA tax rate is 6.0% on the first $7,000 of an employee’s earnings. The rates could be reduced by the states credit.
• State Unemployment Tax:
  • Each state administers its own unemployment insurance program. Rates and eligibility criteria vary by state and by the employer’s experience rating. For example, states like Texas and Florida have relatively low rates, while California’s rates are higher.
• W-2 Forms:
  • Employers must issue a W-2 form to each of their employees by January 31st each year to report total wages, tips, and other compensation, along with the federal, state, and other taxes withheld. The filing deadline for 2025 forms is February 2nd, 2026.
  • W-2 forms are filed with the Social Security Administration (SSA) and provided to employees for use in filing their individual tax returns.
• Quarterly Filing:
  • Employers are required to file payroll taxes quarterly, typically through Form 941 (Employer’s Quarterly Federal Tax Return). For smaller businesses, Form 944 can be used annually.

2 – 1099 Forms Overview

• Definition: The 1099 form is used to report various types of payments for services, such as those made to independent contractors and freelancers. There are several variations of the 1099 form, but the most used is the 1099-NEC.
• Common 1099 Forms:
  • 1099-NEC: This form reports non-employee compensation to independent contractors.
  • 1099-MISC: This form is used for other types of payments, such as rents, royalties, and legal settlements.
• Threshold for Issuing 1099:
  • For 2025, a 1099-NEC must be issued when a contractor receives $600 or more in compensation for services during the year.
  • For 2026, the filing threshold increases to $2,000.
• Due Dates:
  • 1099-NEC: Must be filed with the IRS and mailed to the recipients by February 2nd, 2026.
  • 1099-MISC: Must be filed to the recipient by February 2nd, 2026. If there are payments in box 8 (Substitute payments in lieu of dividends and interest) or box 10 (Gross proceeds paid to an attorney), the due date is February 17^th, 2026.
  • Electronic Filing Requirement: If you are filing 10 or more information returns in a calendar year, you are to file them electronically.

3 – Key Differences Between Employees and Independent Contractors

• Control and Independence :
  • Employees: Work under the direction of the employer and typically follow a prescribed work schedule and workplace policies.
  • Independent Contractors: Operate as separate businesses, with the freedom to determine how, when, and where to work.
• Benefits:
  • Employees: Entitled to benefits like health insurance, paid time off, and retirement contributions. They are also protected by labor laws.
  • Contractors: Responsible for their own benefits and are generally not entitled to the same workplace protections.
• Taxation:
  • Employees: Employers withhold income tax, Social Security, and Medicare, and contribute to unemployment insurance.
  • Contractors: Contractors must manage their own taxes, including potentially self-employment tax.
• Legal Protections:
  • Employees are covered by laws like minimum wage, overtime, workers’ compensation, and unemployment insurance, while independent contractors are not.
• Misclassifications:
  • If a worker is misclassified as an independent contractor rather than an employee, the employer may be liable for unpaid payroll taxes, penalties, and interest.
  • The IRS and the Department of Labor (DOL) use several factors, including the level of control over the worker, to determine whether a worker is an employee or independent contractor.
• Form SS-8:
  • Employers can request the IRS to determine the correct classification of a worker by submitting Form SS-8.

4 – Best Practices for Payroll Management

• Use of Payroll Software/Service: Payroll software or payroll service providers can simplify the process, helping with tax calculations, reporting, and compliance.
• Regular Audits: Perform regular audits to ensure that payroll is accurate and compliant with changing tax laws.
• Clear Documentation: Maintain clear records of employee contracts, 1099 forms, and all payroll tax filings.

5 – Payroll Compliance Challenges

• Changing Laws: Tax laws are subject to change, and employers must remain up to date with federal, state, and local regulations.
• Multistate Payroll: If your business has employees in multiple states, you must comply with each state’s unique payroll tax laws.

6 – Helpful Links

• IRS Publication 15 (Circular E) – IRS: Employer’s Tax Guide
• IRS Publication 15-B (Employer’s Tax Guide to Fringe Benefits)
• IRS Form 1099 Instructions
• IRS Form SS-8 Instructions
• IRS Publication 1779 (Independent Contractor or Employee)

Please contact the tax professionals at Gilliam Bell Moser, LLP if you have questions.

This article is for informational purposes and not intended to be tax advice.

Lisa Satterfield, CPA