RCUH Vendor File & IRS Form 1099 Reporting Requirements. October 2013

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1 RCUH Vendor File & IRS Form 1099 Reporting Requirements October 2013

2 What s on the Agenda? The What and the Why Making improvements Vendor file & vendor records - What s in it Searching the file A new record may not always be the answer New processes & forms Form W-9 Why we need it The Form 1099-Misc process How are payment records selected for 1099s? What filters are used? Vendor records When having only one is best What s reportable, What s not Why is all of this important? 10/17/13 2

3 What is a Form 1099? What is a W-9? What is a Form 1099? It is an informational return filed by RCUH and is issued to a vendor and the IRS for certain kinds of payments. What is a W-9? A W-9 provides a Vendor s Name, Tax ID Number and Federal Tax Classification to RCUH. This information is needed for Form 1099 reporting. 10/17/13 3

4 IRS Form 1099-Misc Rents, Royalties, Medical & Healthcare payments, and all Other Income require separate box reporting 10/17/13 4

5 RCUH IRS Audit In 2013, the IRS selected RCUH to audit tax year The examination included a review of Form 1099-Misc returns filed by RCUH. In some instances, RCUH did not meet IRS Sections 3406, 6721 and 6722 requirements. RCUH needs to improve the completeness and accuracy of its 1099 reporting process or face future fines & penalties. 10/17/13 5

6 Why Are Changes Needed? RCUH did not meet IRS requirements for Form 1099-Misc reporting and needs to make improvements to their process. RCUH is requiring a Form W-9 to collect more complete vendor file information required to do proper 1099 reporting. 10/17/13 6

7 IRS Findings RCUH Payments for 2010 Form 1099s Issued ($) Failed to report ($) Total Non-Payroll Expenditures ($) Non-Reportable 10/17/13 7

8 Improving RCUH 1099 reporting begins with Improving the Vendor file data 1. Reduced the number of active vendor records by removing records not used within the past 2 years. 2. In-progress - W-9 forms are being requested from vendors paid in 2013 to collect missing tax classifications and TINs. 3. Requirement of the W-9 form will improve the quality of new vendor record data. 4. An upgrade of the software platform for the RCUH website is being planned. This will allow smarter forms and increased functionality. Changes to the current system are being limited since they will not carryover. 10/17/13 8

9 Other Related Actions Taken 1. Updated the web RCUH Vendor Registration Form with tax classifications to match the W-9 form. 2. The new VR form enables the user to add the vendor W-9 as an attachment. 3. The Search function of the vendor file has been improved to make finding an existing record easier. 4. Have started to educate users on the importance of a vendor record, how payment coding affects 1099 reporting & the important role that users play in the Form 1099 reporting process. 10/17/13 9

10 Search the vendor file first to find an existing Name match Relocated the Create New Vendor button to be displayed under the SEARCH results 10/17/13 10

11 Improved Display of RCUH Vendor Search Results Users will see the vendor s name and address in its entirety 10/17/13 11

12 A new vendor record can be avoided if a temporary address change is a solution Note change of address on right. It has the same effect of placing a address label over a saved address. Note the Ukee Street address is the address stored on the vendor record. Permanent address changes can only be done by ing [email protected] 10/17/13 12

13 2.670 Change in Vendor Address 10/17/13 13

14 New Create Vendor Checklist RCUH for address changes Goto RCUH for instructions PDF for Foreign Vendor creates 10/17/13 14

15 Updated RCUH Vendor Registration Form, 10/21/13 Users must enter information from the W-9 form to the Registration screen Users will continue to have the ability to create new records for U.S. vendors. NRA employee vendor records are allowed. RCUH will review the new records being created and may contact you if followup with the vendor is required. 10/17/13 15

16 Updated RCUH Vendor Registration Form (2 nd half of form) Attach the W-9 NEW FOREIGN VENDOR RECORDS ARE CREATED BY RCUH ONLY If creating a new vendor record for a foreign indivdiual/sole proprietor or a foreign company, complete the FOREIGN VENDOR REGISTRATION FORM (Att 50). Send forms and attachments to [email protected] Users do not have to Attach a W-9 for governmental entities or employees. 10/17/13 16

17 RCUH will create new Foreign Vendor records using this Attachment 50. Attachment 51 is a forms-fillable Requisition form. 10/17/13 17

18 The Form W-9 Federal Tax Classification Vendor is the name of the business or individual in a RCUH vendor record. The vendor s name is printed on the check. The W-9 requires a vendor to provide The Taxpayer s name and the Business name (if different) Tax Identification Number (TIN) Federal Tax Classification The vendor s name, address, and TIN collected from the W-9 is used on the Form 1099 issued by RCUH. The W-9 is a required attachment effective 10/21/13 when a new RCUH vendor record is created for a U.S. vendor. 10/17/13 18

19 An example of a vendor s W-9 Federal Tax Classification SSN Tax ID Number The W-9 attachment will be reviewed and validated by RCUH Disbursing after the vendor record is created. EIN 10/17/13 19

20 Which RCUH Payments are required to be reported on a Form 1099? Annual payments of $600 or more are selected on a combination of the vendor s Federal tax classification & the payment code filing errors or a failure to file may occur when vendor information is missing or if the wrong information is reported or, if the wrong payment code is used. 10/17/13 20

21 Form 1099 Reportable Payment Types Payments for rent, including space & equipment rentals Royalty payments greater than $10 Prizes & Awards Study subject payments Payments for services, consultants, repair & maintenance services, subcontracts, construction services, catering, transportation, honoraria, etc. Payments for legal services to any vendor Payments for medical services to any vendor ETC Reference IRS Instructions for Form 1099-Misc 10/17/13 21

22 UH Object Code (OC) & RCUH Budget Category (BC) are used to select 1099 reportable payments The OC and BC type are one criterion for selecting payment records for Form 1099 reporting. The correct code is critical for correct reporting. The type of account used on a payment determines whether a OC or BC is used. Type of Account Object Code Budget Category UH F&P X RCUH Revolving X UH GRS X RCUH Direct X 10/17/13 22

23 Reportable 1099 OC & BC Codes Payment Type Form 1099 Box # UH Object Code RCUH Budget Category Budget Category Type Rents to Q Rent Equipment T Rent Space Royalties ($10) n/a n/a Prizes and awards n/a n/a Other income 3 Payments to individuals for participating in a medical research study 3 n/a n/a n/a Fishing boat proceeds 5 n/a n/a n/a Medical and health care payments n/a F - Consultants Services (including parts and materials) to to to to A to 763U F Consultants R Repairs & Maint S - Other V Subcontracts >$25K X Construction Y Subcontracts<$25K 10/17/13 23

24 Reportable 1099 OC & BC Codes continued Payment Type Form 1099 Box # UH Object Code RCUH Budget Category Budget Category Type Nonemployee compensation to 7174 (not including 7105, 7120) Cash payments for fish 7 n/a n/a n/a Crop insurance proceeds 10 n/a n/a n/a F Consultants L Other Travel, Consult M Other Travel, Foreign, Consultant Attorney payments (gross proceeds) n/a F - Consultants 10/17/13 24

25 Budget Category Type Codes are used to select payment transactions for 1099 reporting Budget Category Type is displayed on the BSR report preceding the BC column 10/17/13 25

26 Vendor Federal Tax Classifications are an additional criterion for selecting reportable payments Classifications that require 1099 reporting Individual/Sole Proprietor; including a single member LLC Partnership; including a LLC taxed as a partnership Classifications that do not require 1099 reporting C Corporation*; including a LLC taxed as a C corporation S Corporation*; including a LLC taxed as a S corporation Federal, State and other forms of government entities UH & RCUH employees *Exception Payments for legal or medical services to corporations are reportable. 10/17/13 26

27 Annual payments of $600* to a tax class I/SP or P vendor is reported on a Form 1099 *Royalty threshold is $ or 0006 for Consultant Services 7120 or BC for Medical Services 7120 or BC for Medical Services 7115 or BC for Legal Services Payments to Individuals & Sole Proprietors >=$600 Payments to Partnerships >=$600 Payments to to Corporations >=$600 Payments to Corporations >=$600 PAYMENTS FOR LEGAL OR MEDICAL SERVICES ARE REPORTABLE TO ALL FEDERAL TAX CLASSIFICATION TYPES INCLUDING CORPORATIONS 10/17/13 27

28 Selecting 1099 Payments Federal Tax Classification Payment code Samuel Adams is a Sole Proprietor. Samuel Adams DBA is Sam s Masonry. His SSN was reported to RCUH on his W-9. $600 or more? Report on 1099!! $5000 RCUH check coded 5815, Repairs & Maintenance, paid to Sam s Masonry $5000 exceeds the $600 reporting threshold 5815 is a reportable OC 10/17/13 28

29 Multiple Vendor Records for a Single Vendor Multiple records for a single vendor pose a problem when the payments need to be reported to the IRS. Active duplicate records cannot be deleted from the RCUH vendor file. In this situation, a single vendor record per individual or business is ideal. If a single vendor has multiple records, the payments have to be manually consolidated in order to accurately record the total sum paid on the Form Increases the possible error rate in reporting Involves additional work, time and effort. 10/17/13 29

30 Multiple Vendor Records for a Single Vendor May look like Different Vendors LIZ ELIZABETH BETH Every vendor record is assigned a vendor code D2360 Wells, Elizabeth paid $500 H1426 Wells, Beth paid $800 C3245 Wells, Liz paid $225 The correct action is one Form 1099 to a single vendor named Elizabeth Wells paid a total of $1525 Multiple payment records to a single vendor have to be manually consolidated to accurately report all RCUH payments on the Form If one individual is treated like 3 different individuals, only Beth Wells would receive a /17/13 30

31 A Budget Category may include both 1099 Reportable & 1099 Non-Reportable payments Non-Reportable Equipment Supplies Reportable Fee for service payments Rental fees 0026, Safety Non-reportable payments may be reported to avoid a failure to report situation. There is no penalty for over-reporting. 10/17/13 31

32 Payments that are Excluded from 1099 Reporting Purchase of Goods* Supplies Equipment Books Payments to Corporations; except that payments for legal or medical services to corporations are reportable Payments to Government entities, Federal, State, etc. Reimbursements to employees; including University of Hawaii & RCUH employees ETC. * Goods purchased for recipients receiving Scholarship/Fellowship support are income to the recipient even though a Form 1099 may not be required. 10/17/13 32

33 Non-Reportable 1099 Payments 7100 or 0006 for Consultant Services 5800 or 0017 for Repair Services Any Object Code/BC Any Object Code/BC Payments to Payments Individuals to & Sole Individuals Proprietors <$600 Sole Proprietors <$600 Payments to Payments to Individuals & Sole Partnerships Proprietors <$600 <$600 All Payments to Employees All Payments to Government, Federal, State Even if a payment to Individuals, S/P & Partnerships may be reportable, the total annual payments must exceed the $600 threshold. Payments to Employees and Local, State & Federal governmental vendors are not Form 1099 reportable on any payment code. 10/17/13 33

34 The important role YOU play START HERE! ASSIGN VENDOR# OR CREATE NEW VENDOR CREATE NEW PO MAKE A PAYMENT CHANGE ADDRESS TEMPORARILY You are an integral part of the Form 1099 process. It begins when you assign a vendor number or create a new vendor record. CHANGE ADDRESS TEMPORARILY MAIL OR FORWARD RCUH CHECK VENDOR RECEIVES A FORM /17/13 34

35 Recommendations & Tips Create a new vendor record only if an existing vendor name cannot be found through a Search. New vendor creates can be avoided if the temporary address change is a viable solution. Avoid entering punctuation marks and blank spaces unless integral to the name. Symbols may affect the vendor search to return results. Examples: MCDONALD not MC_DONALD, AT&T not A T & T. Refrain from using OC 7200 & BC 0020 (or OTHER) for Form 1099 reportable payments. W-9 Forms Make sure the form is complete and not blank. Sometimes vendors only enter their name. Make sure that fill-in fields are complete. Single member LLC organizations are classified as sole proprietors. Contact RCUH at [email protected] to update vendor records. 10/17/13 35

36 IRS References Form W-9, Request for Taxpayer Identification Number (TIN) and Certification Number-and-Certification Instructions for Form 1099-Misc IRS Publication 1281, Backup Withholding for Missing and Incorrect Name/TINs (see Q&A #26 & 32) 10/17/13 36

37 Mahalo Thank you for your attention! 10/17/13 37