backup withholding and form 1099 miscellaneous … fall conference/presentations...backup...
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Federal, State & Local Employment Tax
Backup Withholding and
Form 1099 Miscellaneous
Update
Presenter
Michael Durland CPA,
Revenue Agent, FSL/ET
434-218-6432
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Backup Withholding
• Internal Revenue Code Section 3406
• Withhold specified percentage (currently
24%)
• Of reportable payments
• Reported on information returns
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Form 1099 Reminders
• Paid $600 or more for:
• Rent
• Non-employee compensation
• Prizes and awards
• Medical or healthcare costs
• Attorney payments
• Issue Form 1099-MISC to:
• Individuals and partnerships
• Corporations - if medical, health care, or
attorney payments
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Information Return Law Updates
New Filing Due Date : January 31st
Forms W-2/W-3 to SSA
Forms 1099-MISC, Box 7 to IRS
Inflation-Indexed Penalty Amounts
Effective: January 1, 2016
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IRC §§6721/6722 Penalties for Failure to File & Failure to Furnish
• Information Returns due Jan. 1st, 2016 forward
• Not more than 30 days late = $50/return
[capped at $532,000]
• 31 days late up to August 1st = $100/return
[capped at $1,596,500]
• Later than August 1st = $260/return [capped
at $3,193,000/calendar year]
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IRC §6721 Penalty Failure to File
De Minimis Failures
If corrected and filed by August 1st –
Then, the failures may not exceed the greater
of:
1. 10; or
2. One-half of one percent (.005) of the
information returns required to be filed
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IRC §§6721/6722 Penalties for Failure to File & Failure to Furnish
Intentional Disregard
The greater of:
1. $520 per information return (>2016); or
2. Ten percent (10%) of the aggregated
amounts required to be reported correctly;
and
3. the caps on penalties are removed.
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IRC §6723 Penalty Failure to Comply with Other Reporting Requirements
• $50 per Information Return
[Capped at $100,000/calendar year]
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Questions
• Entity classification/type?
• Reportable payments?
• Backup withholding apply?
• File Form 1099 with the IRS?
• Furnish Form 1099 to payee?
• Payee’s Taxpayer Identification Number
(TIN)?
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Form W-9
• Specify Limited Liability Company (LLC)
classification
• Corporation
• Partnership
• Disregarded entity
• Some payees exempt from backup
withholding
• Payee must provide TIN
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Backup Withholding (BWH)
• Common payments subject to BWH:
• Interest and dividends
• Rents, royalties
• Commissions
• Gross proceeds paid to attorneys
• Non-employee compensation
• Certain payments are excluded from BWH
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Backup Withholding – Ex 1
• BWH required when a reportable payment is
made to a payee:
• Not exempt from BWH
• Who hasn’t provided their TIN
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Backup Withholding – Ex 2
• BWH required when:
• Payer receives a CP2100 or CP2100A Notice
(CP Notice) from the IRS listing TINS that are:
• Missing
• Incorrect, and/or
• Not currently issued
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CP2100 & CP2100A Notices
• Large volume filers
• Have ≥ 250 error documents
• Receive a CD or DVD data file CP2100
• Mid-size filers
• Have 50 - 249 error documents
• Receive a paper CP2100
• Small filers
• Have < 50 error documents
• Receive a paper CP2100A
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CP Notice – Missing TIN
• Begin BWH on payee payments
• Continue BWH until the TIN is received
• “Missing TIN”
• Not provided
• Has more or fewer than nine numbers
• Has an alpha character as a number
• See FAQ #19 in Publication 1281
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“B” Notice 1 of 2
• “B”ackup withholding Notice
• There are two “B” Notices
• The First “B” Notice – when a payee appears
only once on the last 3 annual CP Notice lists
• The Second “B” Notice - when a payee
appears on 2 of the last 3 annual CP Notice
lists.
• The information may not be solicited by
telephone
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CP Notice – Incorrect TIN
• If your information does not agree with the
CP Notice, no “B” Notice is required to be
sent. It could be the result of:
• A recent update to SSA records,
• An error in the information you submitted, or
• An IRS processing error
• If your information and the CP Notice agree,
send the appropriate “B” Notice to the payee
(unless it relates to the same tax year as the earlier
CP Notice - See Publication 1281.)
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“B” Notice 2 of 2
• For the two “B” Notices, on the outside
mailing envelope, mark:
• “IMPORTANT TAX INFORMATION
ENCLOSED” or,
• “IMPORTANT TAX RETURN DOCUMENT
ENCLOSED”
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First “B” Notice Requirements
• Send First “B” Notice & Form W-9 by the later
of 15 business days from date
• Of CP Notice
• You receive it
• Begin BWH if no signed Form W-9 received
• Stop BWH when a signed Form W-9 is
received
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Second “B” Notice Requirements 1 of 3
• Send Second “B” Notice within 15 business
days after you receive the second CP Notice
• Don’t include a Form W-9
• Payee to contact IRS or SSA
• Payer must receive a validation of the payee
name/TIN combination
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Second “B” Notice Requirements 2 of 3
• Payee validates these by providing payer:
• SSN - a current Social Security card
• EIN - an IRS Letter 147C
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Second “B” Notice Requirements 3 of 3
• Begin BWH no later than 30 business days
after receipt of the CP Notice, unless Social
Security card or IRS Letter 147C received
from payee
• Stop BWH within 30 days after receiving the
validation
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Third and Subsequent “B” Notice
• After two CP Notices received and two “B”
Notices sent for a name/TIN combination,
check “2nd TIN Not.” box on Form 1099.
Ignore subsequent CP Notices for that
name/TIN.
• If a CP Notice is received for the same payee
but different name/TIN combination, treat the
notice as a first CP Notice and send a First
“B” Notice.
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Form 945
• Report backup withholding tax annually
• Follow deposit requirements in Publication
15, (Circular E), Employer’s Tax Guide
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Where to Call for Help
• Backup withholding, information reporting,
Forms 1099, CP Notices:
• The Information Reporting Program
Centralized Customer Service Site
• Telephone 866-455-7438 (toll free)
• 304-263-8700 (not toll free)
• Hours 8:30 - 4:30 pm M - F, EDT
• E-Mail [email protected]
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TIN Matching Service
• 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
• Failure to register and/or use program will not be used to impose civil penalties on non-users
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TIN Matching Service
The TIN Matching Program contains
all Social Security Numbers
(SSNs), Individual Taxpayer
Identification number (ITINs), and
Employer Identification Numbers
(EINs) issued by SSA and IRS
Register with IRS e-services at
www.irs.gov/taxpros
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TIN Matching Service
• Interactive TIN Matching - Match groups of up
to 25 payee name/TIN combinations – up to
999 requests
• Bulk TIN Matching – Submit a file with up to
100,000 TIN/name combinations
• See Publication 2108A
• See “how to” video at IRSvideos.gov
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RESOURCES
IRS Forms and Publications
• http://publish.no.irs.gov/catlg.html
• Forms 1-800-829-3676 (800-TAX-
FORM)
• “General Instructions for Certain Information
Returns” (Catalog #27976F)
• “Instructions for Forms 1099-MISC” (Catalog
#11409F)
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RESOURCES
• Tax-Exempt/Government Entities Customer
Account Services
• 877-829-5500 (8:00 am - 9:30 pm EST)
• Federal, State & Local/Employment Tax
(FSL/ET)
https://www.irs.gov/government-entities/federal-state-local
governments/information-returns
https://www.irs.gov/government-entities/federal-state-local-
governments/increase-in-information-return-penalties-2
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End of Presentation
Thank You!
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