2008 Review of W-2/1099 Compliance Programs

Still, there are many professional practices that prefer to stay away from
payroll, and many clients who keep the task in-house. And while these clients
may keep up with the routine tasks associated with payroll, such as managing
withholding liabilities, paying third parties and other issues, they often aren’t
prepared for the year-end compliance functions, so once again, they turn to
their accountant.

Key among these functions, of course, are preparing forms W-2, 1099 and 1098
for employees or other recipients, as well as forms W-3, 1096 and 5498. While
many full payroll programs include capabilities for wage reporting issues, few
offer 1099 and 1098 options or tools to meet annual compliance for these forms.
Even very small businesses can be required to produce hundreds or more of these
forms, and the penalties can be considerable, so finding a compliance solution
is necessary. While numbers were not yet available breaking down the small business
contribution, according to the IRS, more than 1.8 billion information returns
were filed in TY 2007. Talk about a mountain. But thanks to advances and mandates
related to e-filing, 1.1 billion of these were filed electronically.

Fortunately, several technology vendors have developed specialty programs
focused almost exclusively on preparing W-2s, 1099s, 1098s and their related
reports. While the tasks aren’t necessarily related during business processes,
they come together at the end of the year when they need to be sent to the IRS
and SSA, so it is intuitive for these programs to handle both projects. Most
of these systems are from smaller vendors, but many have been on the market
for decades. Some larger accounting and payroll providers are starting to see
the potential market, however, and are adding modules to address these needs.

Each of the programs here approaches these year-end tasks in different ways
and provides varying reporting tools and specific form support, often related
to the depth of the payroll capabilities within the system. They also vary in
their support for state filings, but all of them now offer electronic filing
of year-end information returns, a requirement by the IRS and SSA for filers
with more than 250 such returns.

Annual information return reporting is one of the biggest challenges of payroll,
especially for small business owners who may not know the requirements and potential
pitfalls. So these businesses will, for the foreseeable future, continue to
rely on their accountant for these services, and accountants will continue to
need a specialty W-2/1099 preparation program.

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