January 11, 2017 by Toni Nelson
The month of January is always a busy time for local government finance personnel. There is the closing of the fiscal period for accounting purposes and then there are numerous reports to be completed, some of which only occur once a year. The importance associated with these requirements cannot be overemphasized. This blog will not touch every requirement but will focus on those areas of compliance that I feel are the most important and impact the majority of our readers. The intent is to make you aware of the deadlines (there are changes for some) and to provide links to resources that will assist you with meeting these legal compliance tasks.
The “Open Period”
MRSC gets a lot of questions about the open period this time of year. The open period is a finite number of days where claims for services that were received in the prior fiscal period must be paid and recorded against the prior year’s budget.
For Cities and Towns the open period refers to the first 20 days of the year (January 1–20). RCW 35.33.151 and RCW 35A.33.150 both state, in part:
…the accounts for budgetary control for each fiscal year shall be kept open for twenty days after the close of such fiscal year for the purpose of paying and recording claims for indebtedness incurred during such fiscal year.
For Counties the auditor determines if and for how long the open period will be. RCW 36.40.200 states that, at the auditor’s discretion, the records “may” be held open from 30-60 days. The statute reads, in part:
…PROVIDED, That the appropriation accounts may remain open for a period of thirty days, and may, at the auditor’s discretion, remain open for a period not to exceed sixty days thereafter for the payment of claims incurred against such appropriations prior to the close of the fiscal year.
For those of you working in a county, your auditor will let you know what this timeline is. Special purpose districts that use the county as their Treasurer should clarify whether the county’s open period (if applicable) is being applied to their year-end financial transactions.
The above referenced statutes primarily impact “cash-basis” entities and it’s important to keep in mind that cash-basis entities have a reporting requirement for the open period in Schedule 07 – Disbursement Activity. GAAP reporting entities, by virtue of their basis of accounting (modified and/or full accrual), should already be meeting these statutory requirements.
Reporting: Federal Reporting Activities and Deadlines
Reconciling Wages and Taxes. The 941 Employer’s Quarterly Federal Tax Return form for the 4th quarter of 2016 is due by January 31, 2017. You may be asking why I would mention this quarterly report within the context of year-end reporting requirements. The reason is to stress the importance of reconciling your payroll data. It's essential to reconcile reported wages and taxes for each of the 4 quarters of 2016 prior to filing the W-3 transmittal of the 2016 wage and tax statements. With regards to reconciling Forms W-2, W-3, 941, 941-SS, 944, CT-1, and Schedule H (Form 1040), the IRS publication for General Instructions for W-2 and W-3 forms states:
Reconcile the amounts shown in boxes 2, 3, 5, and 7 from all 2016 Forms W-3 with their respective amounts from the 2016 yearly totals from the quarterly Forms 941 or 941-SS or annual Forms 943, 944, CT-1 (box 2 only), and Schedule H (Form 1040). When there are discrepancies between amounts reported on Forms W-2 and W-3 filed with the SSA and on Forms 941, 941-SS, 943, 944, CT-1, or Schedule H (Form 1040) filed with the IRS, you will be contacted to resolve the discrepancies.
Taking this extra step to reconcile the 941 quarterly reports to the totals on the W-3 transmittal will eliminate any potential audit issues with the IRS later.
Filing Annual Wage and Tax Statements. W-2 Wage and Tax Statements and the W-3 transmittal of Wage and Tax Statements are required by all local government entities who pay remuneration for services performed by an employee. Whether you file electronically or use paper forms, the deadline for completing these forms, distributing them to your employees, and filing them with the Social Security Administration (SSA) is January 31, 2017. This is a new filing deadline for Form W-3 and copy A of Form W-2.
The IRS provides general instructions on the preparation of the 2016 W-2’s and W-3 . This publication provides information on completing and filing these forms, along with tips on the most common errors, and a section on completing forms W-2c and W-3c, should you discover an error after the initial filing.
For many of you, the preparation of the W-2s is automatically generated via payroll software systems, requiring only that you verify the data, distribute the W-2s to employees, and file them with the SSA. However, there are those entities that do not have a separate payroll software program and cannot generate W-2s because they are either too small or receive financial services through a county. If this describes your entity, the SSA has an E-filing program that can save you time, effort, and money.
Backed by the IRS, the SSA’s Business Services Online (BSO) is a great tool for those who prepare and file 50 or fewer W-2 forms at a time. The BSO system guides you through the process of creating W-2s, allows you to save data as you go, print forms when they are ready, and will submit the completed W-2 and W-3 forms to SSA when you are confident of the data (file no later than January 31, of course). The BSO system additionally generates Form W-3 based on the W-2 forms completed.
Filing Annual Miscellaneous Income. 1099 – MISC (Miscellaneous Income) must be prepared and distributed for each vendor to whom you paid at least $600 during the year. There are some exceptions, the most common being:
- Payments to a corporation, including LLC’s (refer to 1099-MISC Instructions)
- Payments for merchandise, telegrams, telephone, freight, storage, and similar items
- Business travel allowances paid to employees (may be reportable on Form W-2)
For a complete explanation of requirements and exceptions see the Instructions for Form 1099-MISC and the General Instructions for Certain Information Returns (1097, 1098, 1099, 3921, 3922, 5498, and W-2G).
The 1099-MISC form is not popular to receive or prepare, so it’s important to be aware of the requirements to assure accuracy of reporting the form to both the vendor and the IRS.
The distribution of Form 1099 to all payees that meet the requirements is January 31st. However, starting this year the remittance of the 2016 1099 forms via Form 1096 Annual Summary and Transmittal of 1099 forms has changed for some classifications of compensation. For all payments reported in “Box 7 nonemployee compensation” on the 1099 form, the deadline for mailing to the vendor remains January 31st. Additionally, there is a deadline of remitting the IRS copy of these “Box 7” 1099 forms, along with the 1096 Summary and Transmittal form, to the IRS by January 31st. The IRS instructions for Form 1099-MISC states:
Public Law 114-113, Division Q, section 201, requires Form 1099-MISC to be filed on or before January 31, 2017, when you are reporting nonemployee compensation payments in box 7. Otherwise, file by February 28, 2017, if you file on paper, or by March 31, 2017, if you file electronically. The due dates for furnishing payee statements remain the same.
These year-end compliance issues are what I consider to be the most critical. You will have other quarterly and annual reports to complete, such as the Annual Financial report (I will cover it in another blog), but the deadline for that report is May 30th, which gives you another couple of months to prepare
If you have any questions about your reporting requirements please do not hesitate to send an email inquiry to: firstname.lastname@example.org or call MRSC (206) 625-1300 and ask for Toni Nelson. Happy New Year everyone and welcome to 2017!