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Back to School Basics – Form 1099 MISC

Agenda Purpose of Form 1099 MISC Typical Recipients Overview – Line by Line Detail Filing Requirements

Back to School Basics - Form 1099 MISC

A record of income received from a business for services rendered

Cost-cutting alternative for companies needing specific tasks completed Non-employee compensation means no company paid taxes No need to provide benefits or offer employee incentives No risk of investment loss to the company

Typically the relationship can be ended once the task is completed

Purpose of Form 1099 MISC

Independent Contractor or “freelancer”

Actors, novelists, freelance writers and other creative artists

Also used to report income from the following : At least $10 in royalties or broker payments in lieu of

dividends or tax-exempt interest Gross proceeds of $600 or more paid to an attorney Fishing boat proceeds $600 or more in Rents, services, prizes and awards

Form 1099 MISC Recipients

$600 or more in medical and health care payments, crop insurance proceeds, cash payments for fish

$600 or more in cash paid from a national principal contract to an individual, partnership, or estate

$600 or more in other income payments direct sales of at least $5,000 of consumer products

to a buyer for resale anywhere other than a permanent retail establishment.

Form 1099 MISC Recipients

Payroll departments usually handle the “other income” payments and nonemployee compensation

Audience Poll – Does your business hire Independent Contractors?

Overview – Line By Line Detail

Payer’s Information Identification Numbers Recipient’s Information Account Information 2nd TIN Not

Overview – Line By Line Detail

Box 1 – Rents Box 2 – Royalties Box 3 – Other Income

Prizes and awards FMV of merchandise from game shows or sweepstakes Punitive Damages

Compensatory damages for non-physical injuries or sickness

Damages received for emotional distress Physical symptoms from emotional distress reportable Damages received due to emotional distress from

physical injuries or sickness NOT reportable

Overview – Line By Line Detail

Payments of a deceased employee’s wages Estate or Beneficiary

Payments of Indian gaming profits or to Tribal Members

Termination payments to self-employed insurance salespeople

Box 4 – Federal Income Tax Withheld Backup Withholding

Box 5 – Fishing Boat Proceeds

Overview – Line By Line Detail

Box 6 – Medical and Health Care Payments $600 or more to physicians and medical/health care service

providers Includes payments made by medical and health care insurers

under health, accident and sickness insurance programs No requirement to report payments to pharmacies for

prescription drugs

*Corporation exemption applies when payments made to a health care provider are done through a credit or debit card in an FSA, HRA or HSA.

Overview – Line By Line Detail

Box 7 – Nonemployee Compensation $600 or more Fees, commissions, prizes and awards for services performed Expenses incurred for the use of an entertainment facility Federal executive agencies

Conditional Guidelines Non employee payment Services in the course of the payer’s trade or business Individual or partnership $600 or more

Overview – Line By Line Detail

Box 7 common examples Professional Service Fees Referral Fees Fees and travel reimbursement not accounted to

the payer if the fee and reimbursement total is at least $600 or more

Non-employee entertainers for services Taxable Fringe Benefits to nonemployees Directors fees Nonqualified deferred compensation (409A)

Overview – Line By Line Detail

Box 8 – Substitute Payments in Lieu of Dividends or Interest Definition of “Substitute Payment” means a payment in

lieu of: Tax-exempt interest that has accrued while a short

sale was openand A dividend if the ex-dividend date is after the

transfer of stock for use in a short sale and before the closing of the short sale

Overview – Line By Line Detail

Box 9 – Payer Made Direct Sales of $5,000 or More of Consumer Products to a Buyer (Recipient) for Resale Enter X if applicable Do not enter a dollar amount

Box 10 – Crop Insurance Proceeds Boxes 11 and 12 – Foreign Tax Paid and Foreign

Country or US Possession (For 2013) Box 13 – Excess Golden Parachute Payments Box 14 – Gross Proceeds Paid to an Attorney

Overview – Line By Line Detail

Box 15a – Section 409A Deferrals Box 15b – Section 409A Income

Amounts considered subject to a substantial risk of forfeiture are not included

Also reported in Box 7 Box 16 – State Income Tax Withheld Box 17 – State/Payer’s State Number Box 18 State Income

Overview – Line By Line Detail

TIN (Tax Identification Number) What is a TIN When is a TIN required Missing or Incorrect TIN

Not provided Less than 9 digits Mixture of digits and numbers

Filing Requirements

IRS 1099 TIN Matching Process TIN’s are matched against two files:

All SSN’s issued by the SSA All IRS assigned employer identification numbers

(EINs) CP2100/2100A Notice

“B” Notice Incorrectly Reported TIN by the payee

Correct the data in the system, do not send B Notice

Filing Requirements

Provided TIN and Name Control do not match Send B Notice to payee

Procedure when a TIN is not Provided Backup Withholding @ 28% W-9 Report withholding on Form 945- Annual Return of

Federal Income Tax Withheld

Filing Requirements

When to File 1099 MISC Reporting Period February 28th of the following Tax Year Form 1096 Must be properly addressed and mailed by the due

date to be considered timely Holidays and Weekend due dates

Filing Requirements

Electronic Reporting Automatic Extension of 1 month Must be reported via Filing Information Returns

Electronically (FIRE) system 250 or more forms

Recordkeeping Requirement 3 years from the due date of the returns 4 years from the due date of the returns if backup

withholding was imposed

Filing Requirements

**ELECTRONIC FILING IS NOT ACCEPTED ON MAGNETIC MEDIA FOR 1099 MISC RETURNS**

https://fire.irs.gov

Test files can be submitted in advance to http://fire.test.irs.gov

Filing Requirements

http://www.irs.gov/pub/irs-pdf/i1099msc.pdf - Instructions for Filing Forms 1099 MISC

http://www.irs.gov/pub/irs-pdf/f1099msc.pdf - Form 1099 MISC

http://www.irs.gov/pub/irs-pdf/p1220_11.pdf - Publication 1220, Specifications for Filing Forms 1099 electronically

References

THANK YOU FOR ATTENDING!

J ILLIAN ROBINSON, CPPPENSOFT

(757) 873-1199JR OB INSON@PENSOFT.COM

Thank You