2007 Review of W-2/1099 Preparation Software

Payroll is a recurring nightmare for many small businesses, mostly because of the perceived complexities of submitting withheld funds to two federal agencies, as well as their state and local counterparts, along with new hire reporting to the SSA. And then there are payments to contractors and other non-wage recipients, which are often handled through a business’ accounts payable module as opposed to their payroll program. This can add to the dilemma faced by small business owners when quarterly and year-end state and federal information returns are due.

Of course, forms W-2 and 1099 are completely unrelated when it comes to the IRS and SSA, but when quarterly and year-end returns are being processed, these two disparate tasks join forces and can result in significant penalties if accurate returns are not filed with the IRS, Department of Labor and the Social Security Administration, and recipient copies are not sent out on time. With even small businesses often filing hundreds of W-2s and 1099s, and larger entities easily responsible for thousands, the mountainous chore is quickly apparent.

This is where the business owner or their trusted accountant enters the realm of W-2/1099 software, a special breed of applications that fill a niche often left by many payroll and AP programs. Fortunately, the compliance tasks associated with these year-end information returns continue to get easier because the systems on the market keep streamlining, and the government has steadily increased its support for electronic filing. Businesses can file forms 1042–S, 1098, 1099, 5498, 8027, W-2 and W-2G electronically through the IRS and SSA’s online reporting systems (FIRE and SBO).

As all of you hopefully know, any ‘payer’ business filing more than 250 copies of Form 1099 now must file them all electronically or magnetically, but keep in mind that magnetic media filing is being phased out by the IRS and will no longer be accepted after Dec. 1, 2008. The SSA has already discontinued mag-media filing. For entities with fewer than 250, paper filing will still be supported.

All of the programs reviewed in this section have versions designed for use by professionals managing multiple clients, and all offer electronic filing features, while a few also still provide a magnetic media filing option. Most of these systems have been on the market for several years, even decades in a couple of cases, but they have different levels of forms support and associated features. Likewise, user interfaces and data import functions vary between programs. Therefore, professionals should strongly consider the importance of these features before investing in one of the programs. After all, with potentially hundreds or thousands of 1099s and W-2s, nobody really wants to enter them all manually.

Furthermore, printing and other output options can be a considerable component. If a form is prepared on paper, whether a program can print to pain or pre-printed stock makes a difference. For electronic filing, which is where we are all headed soon anyway, the program must save the files in a manner that is compliant with the federal and state agencies that are being reported to, and also make it easy to complete the process of submitting information returns and track the progress of these filings.

As professional accounting and payroll suites continue to fill out their programs, I expect these functions will be better integrated to provide more comprehensive support for all traditional business reporting and management obligations. But for now, by combining W-2 and 1099 tasks into a singular program (or a pair of related programs,) the systems in this review section fill a much needed gap in the offerings provided by professional payroll and accounting suites, particular in their 1099 reporting functions. 

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