1099-misc, 1099-nec, 1099-g irs reporting · 2021. 1. 7. · 12/15/2020 1 1099-misc, 1099-nec,...

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12/15/2020 1 1099-MISC, 1099-NEC, 1099-G IRS Reporting DOA – Daily Operations Section Statewide Accounting Bureau 2020 Objectives 2 Deadlines and dates Important 1099-MISC/NEC information Goods vs. services Verifying the W-9 Reportable vs. non-reportable payments Reporting classification 1099-G Marking voucher for reporting Verifying reporting using query results Manual adjustments using adjust withholding screen TIN matching & CP2100 Documentation 1 2

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  • 12/15/2020

    1

    1099-MISC, 1099-NEC, 1099-G IRS Reporting

    DOA – Daily Operations SectionStatewide Accounting Bureau

    2020

    Objectives

    2

    Deadlines and dates

    Important 1099-MISC/NEC information

    Goods vs. services

    Verifying the W-9

    Reportable vs. non-reportable payments

    Reporting classification

    1099-G

    Marking voucher for reporting

    Verifying reporting using query results

    Manual adjustments using adjust withholding screen

    TIN matching & CP2100

    Documentation

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    1099-MISC/NEC

    Deadlines and Dates

    • January 11th 2021 Last day for payment cancellations/reissues

    including ACH returns• January 13th 2021 Interfacing agencies submit 1099 file Last day for agencies to make 1099

    adjustments using the adjust withholding function

    • January 25th 2021 1099-MISC/NEC file sent to IRS

    • January 29th 2021 1099-MISC/NEC forms mailed to payees

    • February 1st 2021 Cancellations/reissues and ACH returns to

    resume• March 1st 2021 Adjust withholding screen re-opened

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    Important 1099 Information

    State of Montana uses single supplier system

    All payments made to a supplier will be combined

    to create the total reported on the 1099-MISC/NEC

    $600 combined minimum ($10 for royalties)

    If your agency pays John Doe $10 for services and

    another agency pays John Doe $591 for services, John

    Doe gets a 1099-MISC/NEC

    It is important to mark all services payments for

    withholding as it is impossible to know if they have completed work for

    other State agencies

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    1099-MISC/NEC Reportable vs. Non-Reportable

    Reportable Non-ReportableServices GovernmentsConsultants Tax-exempt entitiesExpert witness testimony Corporations – unless for medical, legal

    services, or fish purchasesLegal services Purchases of goodsMedical services Insurance premiumsNon-employee compensation Legal damages – personal physical injury,

    medical expense reimbursement, property damage claims

    Rent Storage facilities, rent paid to a real-estate agent

    Training

    These are examples – if you have any doubt, mark the payment for withholding 5

    Good vs. Service

    The IRS instructs that, when making a payment for a combination of goods and services (or parts and labor), the

    payer should report the entire amount of the payments if supplying the parts or materials was incidental

    to providing the service

    For example, report the total payments to an auto repair

    shop under a repair contract

    When invoiced for labor and parts, if furnishing parts was incidental to repairing the auto

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    Good vs. Service

    Report the full amount if furnishing the parts is incidental to providing

    the service

    Examples of incidental to providing the

    service

    Repairing the office printer, including copier

    parts

    Providing maintenance for the elevators,

    including replacement control parts

    Building a partition wall in the second-floor

    conference room, includes materials for conference

    room partition wall

    In all three examples, the amount reported is the total bottom-line invoice/payment amount because you contracted for the service and the goods (parts, materials) were necessary to perform the service

    The IRS Instructions for Form 1099-MISC/NEC provide

    further explanation of when the full amount is reportable

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    Good vs. Service• A supplier sells you equipment, and itemized

    further down on the bill of sale is a charge for “operator training on-site”

    • In this case, you should separate the amount for training services and report that dollar amount in Box 1 of Form 1099-NEC

    Example of payment not incidental to providing the

    service

    The IRS Instructions for Form 1099-MISC/NEC provide further explanation of when the full amount is reportable

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    Good vs. Service

    Your organization purchases a dozen paintings from an art show• Treated as goods purchased• Not reportable

    1Your organization hires an artist to create a dozen paintings for your offices•Treated as a payment for a service•Artwork is created specifically for you

    according to your specifications•Reportable

    •Form 1099-NEC Box 1

    2

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    Verifying a W-9

    Instructions for the Requester of Form W-9

    Form W-9 with Instructions for Supplier

    Only accept current W-9 forms provided by the IRS

    Make sure the supplier has provided either an SSN or EIN, not both

    The supplier must choose one box on line 3

    The address provided on the W-9 should always be where tax information (1099-MISC/NEC) is sent to

    Sign and date under penalty of perjury

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    Form W-9

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    Form 1099-MISC

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    Form 1099-NEC

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    Reporting ClassificationsBox Reportable Non-ReportableMISC-1 Land, buildings, offices, conference rooms, equipment, rental

    assistance payments to property owners, surface royaltiesCapital lease payments for interest reported on 1099-INT, payments for storage

    MISC-2 Intellectual property

    MISC-3 Services performed in course of business: punitive damages, non-physical injury, discrimination/defamation, prizes/awards, honorariums, medical research

    Personal injury damages, physical sickness, property claims

    MISC-4 Any amount of money withheld from payment during the year*

    MISC-6 Doctors, dentists, counselors, assisted living workers, clinics, hospitals, nursing homes, medical billing

    Health insurance premiums, prescription drugs, medical goods separate from services, scientific research without illness treatment

    MISC-10 Proceeds paid to attorneys, fees, payment jointly payable to attorney and client

    Personal injury damages, physical sickness, property claims

    NEC-1 Bonuses, commissions, professional services, expert witness fees, legal fees to attorneys, purchases of fish for resale, repairs

    Employee wages

    14*The State of Montana rarely, if ever, uses this box

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    Reporting Classifications1099-MISC Box 1 – Rental Payments

    • Examples include land, buildings, offices, conference rooms, equipment, rental assistance payments to property owners

    • Operating lease – considered as “rent” by IRS the rental is generally returned to lessor at end of lease

    • Capital lease – considered as “purchase of goods” by IRS the rental is generally owned by lessee at the end of lease

    • If capital lease payments include interest, the interest portion of the payment should be reported on form 1099-INT if more than $600 paid to a reportable entity

    • Easements – more than 30 years is reported on 1099-S and less than 30 years on 1099-MISC

    • MOM Policy 335 – Capital Assets defines operating vs. capital lease

    1099-MISC issued if total is greater than $600

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    Reporting Classifications

    1099-MISC Box 2 – Gross Royalty Payments• Examples include copyrighted items: photographs,

    novels/textbooks, performing a symphony or piece of music, or the use of music in a commercial endeavor

    • Generally, payments for use of intellectual property

    Royalties not recorded in Box 2

    • Surface royalties (i.e. payments for the right to strip mine property owned by another) are reported in Box 1 as rent

    • Oil or gas payments for a working interest are reported in Box 1 of the 1099-NEC as non-employee compensation

    • Timber royalties made under a pay-as-cut contract are reported on the form 1099-S

    • Proceeds from real estate transactions

    1099-MISC issued if total is greater than $10

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    Reporting Classifications1099-MISC Box 3 – Other Income

    • Items not specifically reportable in other boxes• Reportable legal damages; punitive, non-physical injury,

    discrimination/defamation• Fair market value of awards/prizes not for services performed• Honorariums

    Other income not recorded in Box 3• Legal damages received due to personal physical injury or physical

    sickness, damages that do not exceed the amount paid for medical care for emotional distress

    • Property claims

    1099-MISC issued if total is greater than $600 17

    Reporting Classifications

    1099-MISC Box 4 –Backup Withholding

    Any amount of federal income tax that has been withheld from

    payments during the year

    Very rare due to state’s internal

    processes

    1099-MISC issued if total is greater than $018

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    Reporting Classifications1099-MISC Box 6 –

    Medical or Health Care Services

    • Doctors/dentists• Counselors• Home health care workers• Clinics/hospitals/nursing

    homes• Medical billing services• Corporate exemptions does

    not apply

    Medical or health care services not recorded in

    Box 6

    • Health insurance premiums

    • Prescription drugs• Medical goods that are

    separate from services• For “pure” scientific

    research without providing any illness treatment

    1099-MISC issued if total is greater than $600

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    Reporting Classifications

    1099-MISC Box 10 –Attorney Gross Proceeds•No corporate exemption•Includes amount paid for fees,

    if cannot be separated from settlement

    •If payment is jointly payable to attorney and client, report full amount to attorney in Box 10

    1Reportable• Defamation• Discrimination• Emotional injuries not

    arising from physical injuries

    2Non-reportable• Payments for damages

    received due to personal physical injury or physical sickness

    • Property claims

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    1099-MISC issued if total is greater than $60020

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    1099-MISC Box 3 and Box 10

    If attorney’s/law firm’s name is on the check,

    report the total amount of the check in Box 10

    If the legal damages payment to the claimant is

    taxable, you must also report this amount to the

    claimant in Box 3 – even if the claimant’s name is not on the check (because of

    the assignment of income doctrine)

    This means you may be issuing two (or more)

    Form 1099-MISCs for a single check

    For example, one to the attorney, reporting the amount in Box 10, and

    one to the claimant, reporting the amount

    in Box 3

    Must manually add the second total in the

    Adjust Withholding screen in SABHRS

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    Legal Damages and Attorney Reporting

    1099-NEC Box 1 – Did the attorney/law firm

    perform services for your company/organization?

    • If yes, report the amount in box 1 of the 1099-NEC

    • No corporate exemption

    1099-MISC Box 10 – Did the attorney/lawfirm

    perform services for your company/organization?

    • If no, and the attorney’s name is on the check, report the gross amount of the check in Box 10 of 1099-MISC

    • No corporate exemption

    1099-MISC Box 3 – Legal damages to claimant,

    report if taxable

    • Punitive damages are always taxable and reportable

    • Reported in Box 3 of the 1099-MISC

    At times, more than one 1099 is required

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    Reporting Classifications

    1099-NEC Box 1 – Nonemployee Compensation• Payments for services to nonemployees• Standard payee exemptions apply (Corps, tax-exempts,

    govt. payees), except no corporate exemption for legal services payments

    Examples• Attorneys/law firms providing legal services to your

    organization (no corporate exemption)• Office cleaning• Plant care• Landscaping• Independent contractors• Consultants• Training• Printers and publishers• Transportation• Security services• Translators and interpreters• Auto repair

    1099-NEC issued if total is greater than $600 23

    1099-G IRS Reporting

    • Used to report taxable grants in Box 6

    • Certain CARES Act grant payments are subject to reporting

    • SABHRS will have option to select 1099-G, Box 6 reporting in 2021

    • Process for 2020 is manual and a combined effort of SAB, SABHRS, and agencies Reporting is limited to certain

    grant payments made with CARES Act funds

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    1099-G25

    Recording Reportable Payments for a Supplier

    • On the voucher at the time of payment (recommended)• Through the adjust withholding screen

    • Main Menu>Suppliers>1099/Global Withholding>Maintain>Adjust Withholding

    There are two ways to record a reportable payment for suppliers

    • Main Menu>Reporting Tools>Query>Query Viewer

    Queries for 1099 Information

    • Run to Excel and sort by highlighting the column headings and pressing “alt,D,F,F”, or use a pivot table to refine your results

    • Identify suppliers not marked and determine if they should have been• Make the required adjustments using the adjust withholding screen in SABHRS

    Query name – MTAP_PAYMENT_DETAIL_REPORT

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    Recording a Reportable Payment in a Voucher

    When creating a voucher, find the

    withholding link on the Invoice

    Information tab

    Click the blue link for withholding

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    Recording a Reportable Payment in a Voucher

    After clicking the withholding link, the withholding information will show

    01Check the with Withholding Applicable box

    02Click the magnifying glass to show the withholding options and select the correct one

    03Return to the voucher by clicking Back to Invoice

    04

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    Partial Reporting

    •This will allow you to select reporting information for each line

    A voucher that needs partial reporting can have multiple invoice lines added

    •One for the amount not subject to reporting•One for the amount to be reported on the corresponding 1099 form

    Create two lines

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    Partial Reporting

    After creating two invoice lines in the voucher, click withholding link in the top right

    1Select View All

    2Once withholding selections are made, click Back to Invoice

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    Verifying Reporting InformationThe query

    MTAP_PAYMENT_DETAIL_REPORT will show all payments

    made by the business unit entered and between the date

    range selected

    We suggest you run this query regardless of how

    the suppliers get marked for 1099 reporting

    This will reduce corrections and help

    realize the volume of your agency’s 1099-MISC/NEC

    reporting

    Determining how often to run the query will likely be dictated by the volume of

    payments made

    Sort query results by supplier name to make it easy to see if all payments

    made to a particular supplier have been marked

    This will quickly determine if all but one or a few payments have been

    marked for reporting

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    Verifying Reporting Information

    In the query results shown, you will notice the

    variation in the withholding code

    information

    If Jim’s Tree Trimming was paid for the same

    type of services for each payment, the withholding

    information should be consistent

    If you see a supplier with a business name that

    clearly indicates a service provided, but is not

    marked, you may want to investigate further

    Business Unit

    Voucher ID Name Remit Vndr

    Vendor SetID

    VchrLine Amt Line Descr

    Withhold Code Amount

    Payment Reference

    Payment Date Reconciled

    PymntSelect Status Stat/Actn

    Bank Account

    6101R 00001234 Jim's Tree Trimming 00001212 STATE 500 1 07 500CHK# 5/5/2016 5/8/2016 PAID CHK

    6101R 00001235 Jim's Tree Trimming 00001212 STATE 100 1 07 100CHK# 5/30/2016 6/2/2016 PAID CHK

    6101R 00001236 Jim's Tree Trimming 00001212 STATE 200 1 07 200CHK# 6/12/2016 6/16/2016 PAID CHK

    6101R 00001237 Jim's Tree Trimming 00001212 STATE 75 1 07 75CHK# 6/30/2016 7/3/2016 PAID CHK

    6101R 00001238 Jim's Tree Trimming 00001212 STATE 300 1 03 300CHK# 7/1/2016 7/5/2016 PAID CHK

    6101R 00001239 Jim's Tree Trimming 00001212 STATE 25 1 25CHK# 7/30/2016 8/5/2016 PAID CHK

    6101R 00001240 Jim's Tree Trimming 00001212 STATE 125 1 07 125CHK# 8/5/2016 8/15/2016 PAID CHK32

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    Manually Adjust Supplier Information

    Main Menu>Suppliers>1099/Global Withholding>Maintain>Adjust Withholding

    Enter the Supplier ID and click search

    If more than one location is shown, check all to make sure you are not missing information

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    Manually Adjust Supplier Information

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    Click the magnifying

    glass next to the Type field

    Select the appropriate

    1099 form for your search

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    Manually Adjust Supplier InformationEnter a date range and click search

    Select View All to see the results, as it only populates the first two lines

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    Manually Adjust Supplier InformationAdding an amount

    •If there are no entries yet, enter your information in the original line•If there are existing entries, select the “+” on the right side of the last line in the series

    •This will create a blank line to make your entry•Never use the “-” option

    •Include the business unit that issued the payment, and it will auto-populate the full business unit which may need to be adjusted to match the voucher information

    •Select the correct withholding classification in the “Class” column•Enter the payment amount•Select the original payment date•Include relevant information in the description regarding the original payment; i.e. reference ID,

    the reason for the addition, initials, etc.

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    Manually Adjust Supplier Information

    Wrong amount

    Wrong reporting

    classificationWrong

    business unit

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    1. Date range must be entered; click search to view existing information2. Select “View All” to see all entries and expand window to see all fields including the description3. Select the “+” on the line you wish to change4. Do not use the “-” button as historical data must be preserved5. Mirror the information from the previous line to reverse the original entry

    • Description should contain original reference ID (warrant number), the reason for the change, and your initials

    6. Create a third line with the correct information• Description should contain original reference ID (warrant number), the reason for the change,

    and your initials7. If you wish to only remove an amount, follow the first four steps only

    Manually Adjust Supplier Information

    • Use the “+” on the line you need to correct to create an additional entry line

    • Completely back off the original entry for a net zero• Enter a third line with the correct information

    Example – wrong amount

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    Manually Adjust Supplier Information

    • Use the “+” on the line you need to correct to create an additional entry line

    • Completely back off the original entry for a net zero• Enter a third line with the correct reporting classification

    Example – wrong reporting classification

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    Manually Adjust Supplier Information

    • Use the “+” on the line you need to correct to create an additional entry line

    • Completely back off the original entry for net zero• Enter a third line with the correct business unit

    Example – wrong business unit

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    Manually Adjust Supplier Information

    Wrong TIN –reporting

    information has been recorded for

    the wrong supplier

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    1. Reverse the incorrect payment information in the adjust withholding screen

    2. If there are multiple lines, you can sum them and make one total entry to back off the entire amount

    3. Add comments; the original supplier account should reference the Supplier ID the amount was moved to• The corrected adjustment should

    reference the Supplier ID that the total was originally reported under

    4. Add the amount to the correct supplier• It’s best to break each of the entries

    out by payment (individual lines) to preserve the information trail

    • Use your best judgement; this will help you later if an issue arises

    Correction/Duplicate Request

    Used by agencies to request a duplicate copy of a 1099

    or correction of a prior year after the deadline

    Reporting deadline for calendar year 2020 is

    January 13th, 2021

    Navigate to ServiceNowand complete the 1099 Correction/Duplicate

    request form

    Upon completion, corrected form will be

    submitted to the IRS and mailed to the payee

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    Correction/Duplicate RequestImportant to verify information before submitting request

    •Main Menu>Accounts Payable>Review Accounts Payable Info>Payments>MT Payment Inquiry• Remit SetID = STATE• Remit Supplier = Supplier ID• Payment Date = between 01/01/2020-12/31/2020 (or the year you are requesting the

    adjustment for)• Click Search• Compare the results to the information in the adjust withholding screen

    •Main Menu>Suppliers>1099/Global Withholding>Maintain>Adjust Withholding• The simplest way to sum a larger number of payments is to copy and paste into Excel

    Navigate to MT Payment Inquiry in SABHRS

    43Failure to report 1099-MISC/NEC to IRS = $280 penalty per 1099

    Quarterly TIN Matching

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    New suppliers’ name and TIN information submitted to IRS to verify accuracy

    Mismatches are communicated with the paying agencies

    Agencies work with suppliers to get updated W-9, which is then sent to DOS

    Supplier is TIN matched again with new W-9 information

    Mismatches are inactivated in SABHRS until a positive TIN match can be completed

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    CP2100 & B-Notices

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    IRS SENDS CP2100 REPORT IN THE

    FALL AND SOMETIMES IN

    THE SPRING

    LISTS TIN MISMATCHES

    FROM PREVIOUS YEAR’S 1099

    FILING

    DOS IS REQUIRED TO SEND B-NOTICES TO

    SUPPLIERS TO GATHER UPDATED

    W-9

    SUPPLIERS HAVE 30 BUSINESS DAYS TO RESPOND TO B-

    NOTICES

    NO RESPONSE RESULTS IN

    INACTIVATION OF SUPPLIER IN

    SABHRS

    B-Notice Example

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    Review Questions

    When do all 1099-MISC forms get uploaded to the IRS?

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    Review Questions

    In the following example, which amounts would be reportable?

    An interior design company constructs several cubicles for your office area. Do you report the amount of the service/labor, the amount of the materials and

    parts, or both?

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    Review Questions

    Your office purchases several photographs to hang around the building. Reportable or not?

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    Review QuestionsAre the following items reportable or non-

    reportable?• Consultants

    • Medical services• Governments

    • Non-employee compensation• Storage facilities

    • Insurance premiums50

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    Review Questions

    Which SABHRS screen is used to make corrections to reportable amounts, business units, and reporting

    classifications?

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    Review Questions

    What is the penalty for failure to report a 1099-MISC/NEC to the IRS?

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    Review Questions

    What is the only box that will be used for 1099-G reporting?

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    Thank you for attending!

    Direct additional questions to ServiceNow or call 406-444-3092

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