OFFICE OF FINANCIAL MANAGEMENT Form 1099-MISC Training September by Yearoveryear

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									 OFFICE OF FINANCIAL
     MANAGEMENT
Form 1099-MISC Training
  September 26, 2008
             Clark Fletcher
      Internal Revenue Service
 Federal, State and Local Government
               Specialist
       What is a 1099-MISC
       information return?

   Form required to report payments for:
     • Rents
     • Royalties
     • Services, or combination of services
       and products
     • Aquatic products
     • Medical and health care
     • Interest or dividends over $600 (for
       non-financial institutions)
What payments must be
      reported?
 Payments of $600 or more for the year
 Paid in the course of your trade or
  business
 All payments to non-corporations
 Certain payments to corporations
    – gross proceeds to attorneys (box 14)
    – attorneys’ fees (box 7)
    – payments for medical or healthcare
     services (box 6)
  One or      LLC’s and Reportable
more owners
                         payments
   An LLC may be taxed as either a sole
    proprietorship, a partnership, or a
    corporation (see handout “tin number”)
   Obtain a W-9 from the payee to
    determine their status
   report payments to sole proprietors and
    partnerships; and, in some cases, to
    corporations
 Examples of Payments

Box 7               Boxes
 Non-employee       Rents (Box 1)

compensation         Royalties >$10
 Commissions          (Box 2)
 Fees              Prizes & Awards
 All forms of          (Box 3)
remuneration for     Medical and health
services rendered   care payments (Box 6)
Medical and Healthcare
      Payments
             Report payments of $600 or
              more in Box 6

             Report payments to all
              individuals, partnerships, and
              corporations

             Medical payments include
              doctor fees, drug testing, lab
              fees, physical therapy, etc.

             * Do not report payments to
              pharmacies or tax exempt hospitals
Report Non-employee Compensation
            in Box 7

    Reportable                         Reportable
     Payments of                         payments include:
     $600 or more to:                   commissions,
      – individuals                     fees for services       (may
                                         include parts or materials in some
      – partnerships                     instances),
      – some corporations               fee splits between
    Paid for services of a person       professionals,
     who is not your employee           referral fees,
    Payments made in the
     course of your trade or
                                        director fees (see Boards
     business                            and Commissions later)
    Payments that
should not be reported
 on Form 1099-MISC
        1. payments to employees;
          such as fringe benefits or
          travel reimbursements
          (note: if not paid as part of an
          accountable plan, travel
          reimbursements and auto
          expenses should be included in
          wages and reported on W-2)
        2. generally, payments to
          corporations
General Exemptions to Filing
     Form 1099-MISC

 •   Payments for merchandise,
     telephone, inventory, storage,
     freight, and similar items
 •   Examples:
        •   Office Supplies
        •   Photocopier (including installation)

 •   Payments of rent to real estate agents
     acting as an agent for the owner
General Exemptions to Filing
     Form 1099-MISC
    Wages paid to employees
      – All compensation, cash or non cash, must be
        reported on Form W-2
      – Subject to all applicable Federal Employment
        Taxes
    Unaccountable business travel allowances paid to
     an employee
      – Report on Form W-2
      – Subject to all applicable Federal Employment
        Taxes
General Exemptions to Filing
     Form 1099-MISC

 •   Payments to a corporation

     • Exceptions:
       •   Payments to medical and health care
           providers
       •   Payments to Attorneys for legal
           services
        Payments to Attorneys
   Section 1031 of the House Bill
    and Proposed Regulation
    1.6041-3 codify the
    requirement to report
    payments to attorneys
    (individuals and corporations)
    – gross proceeds, and
    – payments for services of
      attorneys
   this change was effective for
    1998 and later years
Defining Gross Proceeds
    Gross proceeds are the
     payments made to an attorney
     as part of a legal settlement or
     court order
    Gross proceeds may be issued
     in the names of the attorney
     and the client
    Gross proceeds may include an
     amount for the attorney’s
     services
Reporting Gross Proceeds

             If you cannot determine
              the attorney fees, report
              all of gross proceeds in
              Box 14
              – report amount paid in this
                format: 300000.00
Reporting Gross Proceeds


             If you can determine the
              amount of attorney fees
              included in the gross proceeds:
              – report the fee in Box 7
              – report nothing in Box 14
              (see handout: “Reporting
                requirements for Legal Services”)
            ATTORNEYS
•   If s/he is not a W-2 employee, s/he
    receives 1099-MISC for legal services
    regardless if:
    • Sole Proprietor
    • Partnership
    • Corporation
•   Attorneys receiving 1099-MISC
    should not be in the agency’s
    pension plan
            Review
      1099-MISC Box 7
       Requirements
1. For services or a combination of
  services and products, and

2. Payments are $600 or more, and

3. Paid in the course of your trade or
  business
   Unless...
   meet one of the
You
exemptions...
        Form 1099 Checksheet

                [Yes] / [No]

1. Are the aggregate payments $600 or more to
      any one party for the calendar year?
                   [ ][ ]

2. Did you make the payments in the course of
            your trade or business?
                   [ ][ ]
         Form 1099 Checksheet

3. Is the recipient of the payments any one of
  the following: medical corporation, health
  care provider, legal services corporation,
  individual, sole proprietorship, partnership,
  profit or non-profit organization, or joint
  venture?

                  [   ][   ]

   “NO” to any of the above 3 items indicates a
    1099-MISC is not required.
            When to file
         Forms 1099-MISC
   Report payments on calendar year basis

   Provide copy of Form 1099-MISC to recipient
    by Jan. 31 of the following year

   File with IRS by Feb. 28 (paper) or by March
    31st (electronic) of the following year

   Use separate Form 1096 transmittal form for
    each type of Forms 1099 submitted to IRS
 Common Errors that prevent issuance of
“correct" or “required” information returns

   Failure to obtain identifying information
    before making payment (use Form W-9)
   Failure to aggregate payments from all
    expense categories (use vendor files)
   Assuming payee is a corporation:
      – because name is “Company or Associates”
      – because an EIN is furnished
Common Errors (continued)
   Remember - some corporate payments
    require 1099’s (medical & attorney)

   Where materials and services are
    provided, ensure proper allocation or
    inclusion of materials - see Proposed
    Treasury Regulation 1.6041-1(a)(2)
Corrections of Forms 1099-MISC
    Use “Corrected” box when amending an
     unfiled Form 1099-MISC

    Use “Void” box when amending a filed
     Form 1099-MISC

 (see handout “Form 1099-MISC
   Corrections”)
IRC Section 6721 Penalty
Failure to File by Due Date

    Correctly file by March 30th = $15/return

    Correctly file after March 30th but before
     August 1st = $30/return

    Correctly file August 1st or later =
     $50/return
 IRC Section 6722 Penalty
Failure to Furnish to Payee

  $50   per Information Return
    COMMON QUESTIONS
   Where do I send the information
    returns?
    – Paper returns
        The Internal Revenue Service Center

         listed for your area on the Form
         1096 Instructions
    – Electronic media*
        IRS-Martinsburg Computing
         Center,Information Reporting
         Program, 230 Murall Drive,
         Kearneysville, WV 25430
        *Required for 250 or more returns
    COMMON QUESTIONS
   Can I file an extension to file Forms
    1099?
     – Yes! Send Form 8809 to the address
       shown by Jan. 31 for a 30 day
       extension.
   What if I file the information returns
    late?
     – Unless reasonable cause applies, be
       prepared to pay the 6721 and 6722
       penalties.
    COMMON QUESTIONS
   What if I request and can’t get a Form
    W-9, or the Form W-9 information, from
    the recipient ?
     – Backup withholding applies.

   How long do I keep copies of information
    returns?
     – Three years from the due date, unless
       backup withholding applies (4 years).
Are you required to do Backup
        Withholding?
   Only if you make reportable
    payments to persons,
    businesses, or corporations who
    have not furnished their valid
    TIN
    – the withholding rate is 28% (2006
      and thereafter)
    – backup withholding applies to
      many payments reported on Form
      1099-MISC, some are:
        box 1 = rents (surface royalties)

        box 2 = royalties

        box 7 = NEC
           When to begin Backup
               Withholding
   backup withholding begins
    when aggregate payments for
    the calendar year equal or
    exceed $600*, or
   immediately if:
    – payee was paid >$600 in prior
      year and an information return
      was issued, or
    – payee was subject to backup
      withholding in the prior year
   *   Includes Interest
     How to report Backup
         Withholding
 Report withholding to payee and to IRS
  in Box 4 of Form 1099-MISC
 Form 945 is used to report and pay
  backup withholding to the IRS.
    – This is an annual return, due 1/31/xx
    – ordinary deposit rules apply (EFTPS)
    – make Form 945 deposits separate from
      Form 941 deposits
Backup Withholding Review
Must have reportable payments
Must be a reportable entity
Must secure vendor’s name, address, and
 TIN as shown on IRS forms
Must review prior year’s mismatch notices
 to identify reportable entities
    Deceased Employees
The liability for an employee’s taxes
  depends upon the date of death
Social Security Administration credits an
  employee’s accrued earnings for the
  entire calendar year
IRS credits an employee’s actual wages
  up to date of death
    Deceased Employees
An employee’s tax year ends upon the
  date of death (cash basis)
All income received after date of death
  accrues to the employee’s estate or
  beneficiaries
Reporting for FITW* and FICA purposes
  depends upon date of death
(*Federal Income Tax Withholding)
    Deceased Employees
        Wages Paid in Year of Death
For FITW purposes:
Secure TIN from beneficiary or estate
Issue warrant to beneficiary or estate
Issue Form 1099-MISC (Box 3, Other Income)
  to beneficiary or estate
Report GROSS payment, not actual payment
  (see handout “Reporting Deceased Employee
  Wages”)
    Deceased Employees
  Wages Paid in Year of Death (continued)
For FICA purposes
Withhold FICA taxes
Record FICA wages and taxes on Form W-2
Issue W-2 to employee’s last known address
  (usually the beneficiary or estate)
    Deceased Employees
       Wages paid in year of death
              Summary:

Cease withholding income taxes but
  continue to withhold social security
  taxes
      Deceased Employees
   Wages paid after year of death


Secure TIN from beneficiary or estate
Issue warrant to beneficiary or estate
Issue Form 1099-MISC (Box 3, Other
  Income) for beneficiary or estate
Verifying TIN’s - check it out !
              You may verify any Taxpayer
               Identification Number (TIN*) by
               registering with the IRS’s TIN Matching
               Program

              Use of the TIN Matching program will
               reduce the number of TIN/Name
               mismatches and protect the employer
               from civil penalties

              Register with IRS e-services

           (* TIN = SSN or EIN)
Questions?
Employee vs Contractor
         Publication 1779
   This publication helps you make a
    determination about the status of a
    worker as either an independent
    contractor or an employee
Independent Contractor
     or Employee?

   Review the factors involved in worker
    classification to assure proper tax
    treatment:

   Behavioral Control - how, when and
    where to do the work; training
Independent Contractor
     or Employee?

   Financial Control - significant
    investment, expenses, opportunity for
    profit or loss

   Relationship of the Parties - employee
    benefits, written contracts
                    Employees...
    •Some Factors that may indicate
        workers are employees
   Required to wear uniforms

   Required to work certain hours

   Do not handle own sales receipts

   Do not make own appointments
            Employees...
   Owner provides training

   Owner provides supplies and materials

   Stands no risk of loss
COMMON LAW EMPLOYEE
   IRC 3121(d)(2)
   EMPLOYER HAS RIGHT
    TO DIRECT AND
    CONTROL WORKER
   WORKER MAY BE PART
    TIME OR SEASONAL
   STRANGER, FRIEND,
    OR FAMILY
   BE SURE
    INDEPENDENTS ARE
    NOT TREATED AS
    EMPLOYEES
              Independent
                 Contractor
•Factors that may indicate you are an Independent
contractor

      Makes own schedule
      Buys own products
      Has own phone number
      furnishes own supplies
      furnishes own equipment
      makes a profit or loss as a result of his
       own business decisions
    Independent Contractor
         or Employee?
 If you are not sure whether a worker is
  an employee or independent contractor,
  complete Form SS-8 and send to:
 Internal Revenue Service
 SS-8 Determinations
 P.O. Box 1231
 Stop 4106 AUCSC
 Austin, TX 78767
PROBLEM AREAS
  IN GENERAL
ELECTED and APPOINTED
      OFFICIALS
•   Must satisfy the definition of “public
    office holder”
•   Elements of public office have been
    determined by the Attorney General’s
    Office
•   State statutes or local ordinances
    may define the position
ELECTED and APPOINTED
      OFFICIALS
•   Always employees for income tax
    withholding, maybe employees for
    social security purposes
•   Considered as a special class of
    employees
•   Do not issue Form 1099-MISC in lieu
    of Form W-2
    Boards and Commissions
•   Boards and commissions with
    policy-making authority are elected
    or appointed officials
•   Boards and commissions with
    advisory powers may be common-
    law employees as volunteers or self-
    employed (consult with OFM for
    “public official” status)
      PUBLIC ATTORNEYS
•   Refer to statutes creating the office
•   Consult with Attorney General’s Office to
    discern “public official” status
     If an elected or appointed position:
•   Considered as employee for FITW purpose
•   Consult with the Social Security
    Administration for social security
    purposes
Questions?
                   RESOURCES

   FORMS 1099
    – Questions           1-866-455-7438
                         (8:30 - 4:30 PM EST.)
    – E-mail                www.mccirp@irs.gov
    – Forms                 1-800-829-3676
                          www.irs.gov
    – “Instructions for Forms 1099, 1098, 5498, and W-
      2G” (Catalogue #11409F)
    (see handout “Forms 1099/1096 Resource List”)
             RESOURCES
   Federal, State, Local Governments
    (FSLG)
     – www.irs.gov/govts
   Customer Account Services
     – 877-829-5500 (8:00 am - 9:30 pm EST)
   Washington State
     – www.Clark.M.Fletcher @irs.gov
         425-489-4042

								
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