New Requirements & Best Practices for 1099 Processing

Transcription

1 New Requirements & Best Practices for 1099 Processing Presented by: Heather Jones, Manager Tracy McLaughlin, Manager 2011AASBO Spring Conference

2 Agenda Form W 9 Process Status of new reporting requirements Form 1099 best practices and common questions Audience Questions

3 Where does it all start?

4 Form W 9 Process It all starts with the Form W 9 Backup Withholding Best Practices

5 Insert W 9 form

6 Form W 9 Process Critical elements Name Box 3 Part 1 Part t2

7 Insert W 9 form

8 Back Up Withholding (BUWH) What is back up withholding? od Payments to payees from payers Includes non employee compensation for services Is anyone exempt from BUWH? Tax exempt organizations Tax exempt organizations Government agencies Corporations

9 BUWH Require W 9 from all vendors Payer penalties=28% BUWH taxes First & Second B Notices Form 945

10 Best Practices Annual updated forms Form appropriateness File separately Vendor registration process

11 Recap of Current vs. Proposed 1099 rules Current 1099 laws $600 in services Payments made to a corporation are excluded 10% of vendor list Proposed 1099 laws $600 in goods and services Payments made to all types of entities (except to non profit) 90% of vendor list InMarch2010 Patient Protection and AffordableCare Actwas passed with the new 1099 laws in effect 1/1/2012

12 Why?

13 Status of the new Reporting Requirements In March 2011 the repeal of Section 9006 passed the House of Representatives In April 2011 the repeal of Section 9006 passed the Senate In President Obama s state of the Union address In President Obama s state of the Union address, he expressed a willingness to repeal Section 9006.

14 Best Practices and Common Questions

15 Question #1 How do I determine if the person is an employee or an independent contractor? Answer Publication 1779 Examine the relationship between the worker and the business. Be able to identify the behavior in 3 categories a. Behavioral Control b. Financial Control c. Type of Relationship If you want the IRS to determine for you, fill out Form SS 8

16 Question #2 Should you include materials and parts on the 1099 along with the services performed? Answer YES Payments for services including payments for parts and materials used to perform the services if supplying the parts or materials was incidental to providing the service.

17 Question #3 What is the difference between reporting payments in Box 3 versus Box 7 on the 1099? Answer Box 7 payments are subject to self employment tax. (professional fees and paymentsfor services including parts and materials) Box 3 payments are for all other income such as prizes and awards and are not subject to selfemployment tax.

18 Question #4 Our legal representation is provided by a firm that is a corporation. Do I still have to send them a 1099 if they are a corporation? Answer YES All legal fees regardless of the type of entity must be reported in box 7. If there is a settlement agreement where gross proceeds were paid, then that amount goes to Box 14.

19 Question #5 Where does backup withholding get reported on the 1099? Answer Box 4

20 Question #6 What are the due dates for the form 1099? How about the form 1096? Answer January 31, all 1099 forms need to be to vendors February 28, all 1099 and 1096 forms need to be y, f to the Internal Revenue Service

21 Question #7 If I don t file my forms son time what aet are the penalties? Answer $30 per return if filed within 30 days (by March 30 th ) $60 per return if filed more than 30 days but before August 1 st. $100 per return if filed after August 1 st or you do not file them.

22 Question #8 What if I have to file a correction on the amount that was entered on a vendor s 1099? Answer Prepare a new return, and enter an X in the CORRECTED box at the top of the form. Report other information as per original return.

23 References Publication 1281 BUWH for Missing & Incorrect Name/TIN(s) Form 945 Annual Return of Withheld Federal Income Tax Form W 9 Request for Taxpayer Identification Number and Certification Publication 15, Circular E, Employer s Tax Guide Instructions for 1099 MISC Publication 1779, Independent Contractor or Employee

24 Thank you for joining i us!