A very bad combination: Terminated employee, wrong SSN
Question: We were preparing our W-2s when we noticed that a terminated employee’s Social Security number (SSN) is incorrect. What do we enter in the SSN field on her W-2?
Answer: If you have no way of contacting this employee to clear up the discrepancy, use the incorrect SSN on her W-2; don’t use all zeros. You should also prepare a reasonable cause file for the IRS, if it penalizes you for filing a W-2 with an incorrect SSN. Include her incorrect W-4, as well as your efforts to obtain the correct SSN from her. It’s in this former employee’s interest to respond to you, since the Social Security Administration can’t credit her wages to her Social Security account. If you ever receive the correct SSN, file Form W-2c to correct the error.
Confused over payments in January for December work
Question: An individual did some freelance consulting work for our company last year. We received the last invoice in December 2016 and we expensed it in 2016, also. Including that last invoice, this individual earned more than $600 during 2016. However, our check was cut this month. Must we include the 2017 expenses on a 2016 Form 1099-MISC because the work was performed in 2016, or should that be included on 2017 Form 1099-MISC?
Answer: An easy rule of thumb is to apply the paycheck rule: You report in the year you make the payment, not the year services are rendered. Since you cut the check in 2017, 2017 is the year this payment is reported, presuming that you pay this consultant at least $600 in cash this year.