irs form 1099- misc reporting requirements and updatesthe reporting threshold for services is...

IRS Form 1099-MISC Reporting

Requirements and Updates

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IRS Form 1099-MISC Reporting

Requirements and Updates

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Terminology Form W-9◦ TINs◦ Recent changes to form W-9◦ What is the purpose? Is it mandatory?◦ Who should complete?◦ How does a disregarded entity complete the form?◦ Electronic W-9 process◦ Backup withholding◦ Exempt Payees

Form 1099-MISC◦ New for 2016◦ Correcting Form 1099-MISC◦ Payment Threshold◦ Completing the form correctly◦ Filing and reporting requirements

eServices online: TIN matching program Overview of B-notice process Penalties

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B notice – Backup withholding notice letters Disregarded entity – A legal entity that is disregarded

for federal income tax purposes, often an LLC Information return – Generally, one of the 1099 series

of forms Payee – The entity or individual who is being paid,

vendor Payer – The entity or individual that is paying for goods

and services. The payer has the 1099 reporting responsibility

TIN – Taxpayer Identification Number

Social Security Number Federal employer identification number ITIN – Individual Taxpayer Identification

Number Resident aliens and nonresident aliens who are not

eligible for SSNs are issued ITINs An ITIN has nine digits in the same format as an SSN Always begins with the number 9 Middle numbers are within the range of 70-88, 90-92

and 94-95 Used to meet federal tax obligations

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Form W-9 is used to request the taxpayer identification number (TIN) for purposes of reporting remuneration paid during the calendar year on an information return.

Form W-9 is also used to request certain certifications and claims for exemption

Note the newest version of Form W-9 issued December 2014◦ Federal Tax Classification Corporation Partnership S-Corporation Estate/Trust Limited Liability Company

◦ Exemption Codes Payee Exemption Note the appropriate code on Form W-9 See codes 1-13 – page 3 of W-9 Form

Foreign Account Tax Compliance Act (FACTA) reporting exemption codes Note the appropriate code on Form W-9 See codes A-M – page 3 of W-9 Form

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◦ Provide a name, address and TIN to report income on information returns including remuneration for nonemployee services, fees, interest, rents, royalties, annuities, pensions, payments of prizes and gaming winnings and other gains, profits and income

If the vendor does not have a TIN at the time of payment, the payer is required to perform backup withholding on the payment at the rate of 28% ◦ The payer is liable for backup withholding if they do not obtain

the TIN and do not perform backup withholding◦ The IRS will issue a CP2100 or CP2100A notice to the payer to

alert them that they have an incorrect TIN The IRS will match the information reporting statements such

as 1099 statements to individuals or entities receiving the payments to make sure the amounts are properly reported

The requirement to obtain a Form W-9 for services is not mandatory for most types of payments ◦ The service provider payee’s information and TIN can be

solicited verbally◦ A log should be maintained if verbal solicitation of TINs is

used Form W-9 for interest and dividend payments is

generally mandatory It is recommended that Forms W-9 be obtained from

all payees◦ Such forms are signed by the payee under penalties of

perjury◦ The payee provides information regarding the payee’s

organization type and whether the payee is a disregarded entity

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Any US person receiving remuneration from the payer The reporting threshold for services is generally $600 Dollar thresholds for reporting on various Forms

1099 and other information returns can be found in the chart in back of Form 1099 General Instructions available at www.irs.gov

◦ A best practice is to request a Form W-9 when setting up any vendor regardless of the level of income to be paid

An individual who is a US citizen Born in the United States Born in a foreign jurisdiction to US citizen parents A naturalized US citizen Citizens of Puerto Rico or other US territories are also US

citizens

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A US resident alien ◦ Lawful permanent resident (green card) test◦ Foreign national who meets the substantial

presence test: The alien is present in the US for at least 31 days

during the current calendar year The total number of days of US present during the

current calendar year, plus one-third of the US days during the first preceding calendar year, plus one-sixth of the US days during the second preceding calendar year is at least 183 days

A partnership, corporation, company, or association created or organized in the United States under the laws of the United States

An estate (other than a foreign estate), or A domestic trust (as defined in Reg. 301.7701-7) A nonresident alien who provides services in the

US will complete one of the W-8 series of forms and NOT a W-9

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A disregarded entity is a single member limited liability company that is disregarded as an entity under IRS Reg. 301.7701-3

A single-member LLC, including a foreign LLC with a US owner, enters the owner’s name on the “Name’ line of the W-9.◦ If the owner is also a disregarded entity, enter the first owner that

is not disregarded for federal tax purposes.◦ The name of an entity listed on the “name” line of the form should

never be a disregarded entity. The owner’s EIN is listed on the Form W-9, NOT the

disregarded entity’s EIN. The LLC’s name is recorded on the “Business name” line The information return will be issued under the owner’s name

and EIN even if the payment is made to the LLC

If the LLC has made an election to be taxed as a corporation or a partnership, then the LLC can record its own EIN and name

It will mark the Limited Liability Corporation box on Form W-9

It will note what type of entity it is:◦ “C” Corporation◦ “S” S-Corporation◦ “P” Partnership

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◦ Announcement 98-27 applies to Forms W-9 submitted electronically by payees on or after April 13, 1998. (Announcement 98-27, I.R.B. 1998-15, (Apr. 07, 1998)) ◦ The electronic submission must provide the payer

with exactly the same information as the paper Form W-9

◦ The electronic submission must be signed with an electronic signature by the payee whose name is on Form W-9. The electronic signature must identify the payee

submitting the electronic form and must authenticate and verify the submission. The electronic signature must be the final entry in the submission.

The electronic signature on Form W-9 must be under penalties of perjury. The perjury statement must contain the language that appears on the paper Form W-9. The electronic system must inform the payee that he or she makes the declaration contained in the perjury statement and the declaration is made by signing Form W-9.

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◦ Upon request by the Internal Revenue Service, the payer must supply a hard copy of the electronic Form W-9 and a statement that, to the best of the payer’s knowledge, the electronic Form W-9 was submitted by the named payee. The hard copy of the electronic Form W-9 must provide exactly the same information as the paper Form W-9.

If Form W-9 is not provided by payee, they are presumed to be a US person for purposes of the backup withholding rules

If the payee does not provide the name/TIN at the time of payment, the payment is subject to backup withholding at the rate of 28%

Backup withholding is deposited under the deposit schedule outlined in Form 945 instructions

Backup withholding is reported annually to the IRS on Form 945

Payers should request Form W-9 prior to payment and advise the payee that payment will be subject to backup withholding if the W-9 is not returned

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New due date for 1099-MISC, Box 7 New Forms 1099-QA and 5498-QA Online fillable forms Safe harbor rules for de minimis dollar

amount errors Exceptions for reporting

Form 1099-MISC reporting Box 7, nonemployee compensation

Due date for filing with IRS is January 31, 2017

All other 1090-MISC forms retain the due dates of February 28, 2017 for paper forms and March 31, 2017 if filing electronically

Due date for furnishing copies to recipients remains January 31, 2017

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Achieving a Better Life Experience (ABLE) act Saving for individuals and families supporting

individuals with disabilities Form 1099-QA is to report distributions from

ABLE accounts Form 5498-QA is to report contributions into

an ABLE account

Due to the low volume of paper forms listed below, the forms have been converted to online fillable pdf forms◦ 1099-CAP◦ 1099-LTC◦ 1099-SA◦ 5498-ESA◦ 5498-SA

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If an amount reported on an information return is incorrect, no corrected return is required if:◦ The amount reported is no more than $100

different than the correct amount AND◦ The correct amount of tax withheld is no more than

$25 different than the correct amount Note that the de minimis safe harbor only

applies if the recipient does not request a corrected form

Only report on form 1099-MISC if payments are made in the course of a trade or business

Engaged in a trade or business means you operate for gain or profit

Note that nonprofit organizations are considered to be engaged in a trade or business and are required to issue Forms 1099-MISC

Payments made by federal, state or local governmental agencies are also reportable

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Exceptions are payments which may be taxable but, are not reported on Form 1099-MISC◦ Generally, corporations (more later on this)◦ Payments for merchandise◦ Payments of rent to real estate agents◦ Wages◦ Payments to tax exempt organizations including the

United States, a state, the District of Columbia, a US possession or a foreign government

◦ Compensation for disability or survivor’s benefits for public safety officers (new this year)

◦ Compensation for wrongful incarceration (new this year) See Form 1099-MISC instructions for details

Correct returns as soon as possible◦ Furnish corrected forms to recipients◦ Furnish corrected forms along with Form 1096 to IRS

Check the “Corrected” box at the top of Form 1099-MISC only if a form has already been submitted to IRS

Do not cut the forms, there are two to a page Do not staple the forms to the Form 1096 Do not send corrected forms to IRS if the changes

are only for state and/or local amounts

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Do not send corrected forms to IRS if the changes are only for state and/or local amounts

Error Type 1◦ Incorrect money amount, code or check box◦ A 1099-MISC was issued and should not have been◦ Only one 1099-MISC is required

Do not send corrected forms to IRS if the changes are only for state and/or local amounts

Error Type 2◦ No payee TIN or incorrect TIN◦ Incorrect payee◦ Incorrect form◦ Two corrections are necessary

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See IRS Publication 1220 for details on corrections

Note that you may still have to issue two forms, depending upon what type of corrections are made

Payments reported on Form 1099-MISC are only payments made in course of a trade or business. Personal payments are not reportable

Report payments of $10 or more for:◦ Royalties (Box 2)◦ Payments in lieu of dividends (Box 8)◦ Payments in lieu of tax exempt interest (Box 8)

All other payments reported on Form 1099-MISC have a $600 threshold

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Box 1 – Rents of $600 or more◦ Real estate rentals unless paid to a real estate agent◦ Machinery and equipment rental◦ Amounts paid for labor to operate machinery is

reported in Box 7◦ Pasture rental◦ Special rules for rental of coin operated

amusements. See instructions for 1099-MISC, page 5

Box 2 – Royalties of $10 or more◦ Oil, gas or other mineral properties◦ Intangible assets such patents, trademarks, trade

names or copyrights◦ Royalties paid by a publisher to an author or literary

agent◦ See 1099-MISC instructions, page 5

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Box 3 – Other income of $600 or more◦ Prizes and awards that are not for services

performed Fair market value of merchandise won on game shows Sweepstakes winnings if there is no wager◦ Payments made on behalf of deceased employees See example on page 3, 1099-MISC Instructions◦ Payments made to individuals participating in

medical research studies◦ Payments of Indian gaming profits◦ Termination payments to former self-employed

insurance sales persons

Box 3 – Other income of $600 or more◦ Punitive damages for nonphysical injuries and

sickness◦ Any other taxable punitive damages (Note: this

does not include lost wages paid to a former employee. These amounts are reported on Form W-2)◦ Compensation paid to an H-2A visa agricultural

worker who did not provide a valid TIN◦ Certain FACTA payments – see 1099-MISC

instructions, page 6

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Box 4 – Federal income tax withholding◦ Backup withholding at 28%◦ May be claimed when the payee files their income

tax return Box 5 – Fishing boat proceeds – See 1099-

MISC instructions, page 6

Box 6 – Medical and health care payments of $600 or more◦ Payments to physician, supplier or other provider of

medical or healthcare services◦ Payments made by medical healthcare insurers

under health, accident and sickness insurance program◦ Include payments to Corporations◦ Do not report payments to not-for-profit hospitals◦ See 1099-MISC instructions, page 6

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Box 7 – Nonemployee compensation of $600 or more◦ Payments for services rendered in the course of your

business to individuals who are not employees◦ Payments may be in currency or property (property is

reported at fair market value)◦ Amounts are subject to self-employment tax◦ Very rare to issue a 1099 to an employee Payments on behalf of a deceased employee Rarely an employee may perform services outside his

employee relationship◦ Board of Directors fees are reported in Box 7◦ For a discussion of independent contractor rules, consult

www.irs.gov

Box 8 – Discussed earlier Box 9 – Enter an “X” in the checkbox for sales

by you of $5,000 or more of consumer products to a person on a buy-sell or deposit commission. Do not enter an amount in Box 9

Box 10 – Enter crop proceeds of $600 or more

Box 13 – Enter excess golden parachute payments. See information on 1099-MISC instructions, page 8

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Box 14 – Attorney fees◦ Enter amounts paid to attorneys for settlements

unless the amounts are reported in Box 7◦ Box 7 reflects the services performed for your

business by attorneys, both incorporated and nonincorporated◦ Box 14 will reflect settlements that are paid to

attorneys which include payments to litigants Boxes 15 – These boxes are used to report

items related to Section 409A Boxes 16-18 – These boxes are used to

report state and local information

Corporations are generally exempt but, payments to medical and health care providers and attorneys are reported on Form 1099-MISC

Payments for bona fide expense reimbursements made to independent contractors are not reportable on Form 1099-MISC

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Payers may follow the procedures outlined in IRS Publication 2108A to request authorization to submit names and TINs to the IRS for verification

This is a recommended best practice to verify the TIN at the time any payee or vendor is set up

Verification of TINs can save time and effort in resolving CP-2100 and CP-2100A notices

◦ Found at www.irs.gov◦ Frequently asked questions on pages 4-9◦ Instructions to respond to CP2100 and CP2100A

Notices on pages 10-14◦ Discussion of how the IRS matching process

works on pages 14 and 15◦ Flowcharts on pages 16 and 17◦ First B notice is on page 18◦ Second B notice is on page 21

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Where to get help with questions – Page 9◦ Call + 1 866 455 7438 (TOLL FREE) / +1 304 263

8700 (not toll free)◦ Hours 8:30am - 4:30pm Monday through Friday, ET◦ E-mail [email protected]

Missing CP2100 or CP2100A notices:IRS-Enterprise Computing Center-MartinsburgInformation Reporting Program230 Murall DriveKearneysville, WV 25430

IRC Section 6721 is a penalty for the failure to file correct information returns with the IRS.

IRC Section 6722 is a penalty for failure to supply correct information returns to payees.

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Large Businesses with Gross Receipts of More Than $5 Million and Governmental Entities

Time returns filed/furnished

Returns due 01-01-2011 thru 12-31-2015

Returns due 01-01-16 thru 12-31-2016

Returns due 01-01-17 thru 12-31-2017

Not more than 30 days late(by March 30 if the due date is February 28)

$30 per return/$250,000 maximum

$50 per return/$529,500* maximum


31 days late –August 1


$100 per return/$1,589,000* maximum


After August 1 or Not At All

$100 per return/$1,500,000 maximum

$260* per return/$3,178,500* maximum


Intentional Disregard

$250 per return/No limitation

$520* per return/No limitation


Small Businesses with Gross Receipts $5 Million or Less

Time returns filed/furnished

Returns due 01-01-2011 thru 12-31-2015

Returns due 01-01-16 thru 12-31-2016

Returns due 01-01-17 thru 12-31-2017

Not more than 30 days late(by March 30 if the due date is February 28)




31 days late –August 1




After August 1 or Not At All


$260* per return/$1,059,500* maximum


Intentional Disregard

$250 per return/No limitation



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A withholding agent or payer that fails to obtain a Form W-9 and fails to withhold as required under the presumption rules may be assessed tax at the backup withholding rate of 28%, as well as interest and penalties for lack of compliance.

Misuse of TINS – If the payer (requestor of TIN) discloses or uses TINS in violation of federal law, the payer may be subject to civil and criminal penalties.

See IRS Publication 1586, Reasonable Cause Regulations and Requirements for Missing and Incorrect Name/TINs

Penalty may be waived by showing that the failure was due to reasonable cause and not to willful neglect ◦ See IRC sec. 6724, Reg. Sec. 301.6724-1 and IRS Pub. 1586◦ Generally must show good faith effort and/or breakdown in

processes and procedures ◦ Must demonstrate a process/procedure to avoid in similar

errors in the future Note that W-9s are important in the B-notice process

to support a reasonable cause penalty waiver

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Failure to furnish TIN: The payee can be assessed a $50 penalty for each failure to provide a TIN unless the failure is due to reasonable cause and not willful neglect

Civil penalty for false information with respect to withholding: If the payee make a false statement with no reasonable basis, that results in no backup withholding, the payee is subject to a $500 penalty

Criminal penalty for falsifying information: Willfully falsifying certifications or affirmations may be subject to criminal penalties including fines and imprisonment

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irs form 1099- misc reporting requirements and updatesthe reporting threshold for services is...

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