FORM 1099 REPORTING INFORMATION FOR 2012
Internal Revenue Service
Franchise Tax Board
WHY FILE FORMS 1099?
Federal and State law requires any person, partnership, corporation or other organization including a non-profit organization engaged in a trade or business to file 1099 forms. This form reports payments made in the course of a trade or business. They are provided to the Internal Revenue Service (IRS) and the recipient of the payments.
Failure to report payments and/or report payments accurately (or failure to file electronically if required) may result in penalties of up to $100 ($250 if intentional disregard of filing) per Form 1099 and 28% backup withholding.
WHAT PAYMENTS ARE REPORTED ON FORM 1099?
§ Payments of all amounts for acquisition or abandonment of property secured for debt, broker or barter transactions, crew members by owners or operators of fishing boats, distributions from medical savings accounts, transfer of an employer’s stock to an employee pursuant to the exercise of an incentive stock option plan under Section 422(b) or acquired through an employee stock purchase plan under Section 423(c).
§ Payments of $10 or more relating to stock dividends or distributions, unemployment compensation, state tax refunds, interest (including tax exempt interest), royalties, original issue discount or distributions from cooperatives to their patrons, distributions from retirement or profit-sharing plans, IRA’s, Simples, or insurance contracts.
§ Payments of $600 or more, relating to liquidation distributions, rent, providers of health and medical services, non-employee services (including parts and materials), crop insurance proceeds, cancellation of a debt owed to a financial institution, credit union or government, prizes and/or awards, other income payments and gross proceeds from the sale or exchange of real estate.
§ The above are common payments subject to 1099 reporting. A complete listing of reportable payments can be found in the 1099 instruction guide at www.irs.gov.
Generally, payments made to corporations are not reportable. However, payments to corporations relating to medical and health care payments, attorney fees, and gross proceeds paid to an attorney are reportable on 1099-MISC. An LLC, which does not operate as a Corporation, is subject to 1099 reporting (e.g., held as a Partnership).
WHAT PAYMENTS ARE REPORTED ON FORM 1099-MISC?
The form 1099-MISC is filed by payers for each person paid at least $10 in gross royalty payments or $600 for rents or any account services in the course of a trade or business. A list of the most frequently reported items are as follows:
§ Attorneys’ and physicians’ fees (corporations providing legal and medical services are not exempted from 1099 requirements (see bottom of page 1)).
§ Commissions paid to non-employee salespersons that are subject to repayment, but not repaid in calendar year.
§ Payments for real estate, machine and pasture rentals.
§ Payments and fringe benefits to independent contractors, subcontractors or directors or people not treated as employees. This includes payments to a non-employee for reimbursable expenses for which an accounting has not been made to the payer.
§ Royalties of $10 or more paid to authors.
§ Prizes and awards that were not paid for services rendered, such as winnings from radio/TV shows.
§ Federal amounts withheld as backup withholding.
§ Payments by medical and healthcare insurers to each physical or health care provider under health, accident and sickness insurance programs (applies to corporations). Request from us the new exceptions to the reporting of certain medical and health care payments.
§ Compensation, such as fees, commissions and awards, and “excess golden parachute” payments, paid to a non-employee for services. Ask us for special new rules for “excess golden parachute” payments.
§ Notification of the occurrence of sales of $5,000 or more of consumer products to a person on a buy-sell or commission basis for resale anywhere other than in a permanent retail establishment.
§ Payments to crew member or fish purchases paid in cash for resale. Such payments are reportable in any amount (applies to corporation).
§ Crop insurance proceeds of $600 or more.
§ Health insurance advance payments.
§ Certain income or deferrals of non-qualified deferred compensation (NQDC) subject to Sec. 409A in any amount.
§ Payments to deceased employee after year of death. If paid during year of death, then include payments on W-2.
§ Director’s fees and other remuneration, including payments made after retirement.
§ Payments by escrow agent who maintains owner provided funds in an escrow account are required to provide 1099-MISC for reportable transactions.
§ Payments to individuals in medical research studies.
Helpful Hint: At the time a contract for services is signed or services are performed, businesses should request a completed Form W-9 to obtain the correct taxpayer identification number, name and address of the individual or business performing the services. This will ensure that the correct data is readily available when preparing the information return at the end of the year.
WHAT ERRORS ARE COMMONLY MADE BY PAYERS?
Errors in reporting include:
§ Incomplete or inaccurate reporting of the recipient’s name, taxpayer identification number, address, and amount of money paid (e.g., omission of decimal point).
§ Incorrectly reporting payments made to sole proprietors as payments made to a business. All individuals and sole proprietorships should use a social security number as their identifying number, unless a federal employer identification number is used for their business, in which case, the federal employer identification number is shown as the identifying number.
§ Misclassification of an employee as an independent contractor. If, as an employer, you control what will be done and how it will be done, the recipient is classified as an employee. If you need assistance in classifying individuals correctly, please contact our office.
§ Incorrect 1099 form was used. For example, a Form 1099-Div was filed when a Form 1099-INT should have been filed. Also, two or more types of 1099’s filed with one 1096.
§ Payments of insurance, auto allowances, and scholarships and grants on Form 1099 versus compensation on Form W-2.
Accurate reporting helps the recipient stay clean with the IRS and FTB. Thank you for making an effort to avoid these common errors.
WHEN ARE FORMS 1099 DUE?
The information return must be provided to the recipient by January 31st, following the year of payment. However, the due date for furnishing statements to recipients for Forms 1099-B, 1099-S and 1099-MISC – boxes 8 (substitute payments in lieu of dividends or interest) or box 14 (gross proceeds paid to an attorney) has been extended to February 15.
Information returns must be provided to the Internal Revenue Service by February 28th, following the year of payment. The due date is March 31 if filed electronically.
A 30-day extension may be requested from the Internal Revenue Service by submitting Federal Form 8809 before the due date. If the extension is for more than 10 payers, you must submit the extension requests online or electronically.
STATE OF CALIFORNIA 596 TRANSMITTAL
Beginning with the 1994 tax year, if Forms 1099 are filed with the IRS on paper, filing of the California FORM 596 Annual Summary and Transmittal of Information Returns, and the related State Copy of Forms 1099 will no longer be required. The information will be provided to the California Franchise Tax Board directly by the IRS.
CALIFORNIA REGISTRATION OF INDEPENDENT CONTRACTORS
Any business or government entity (“service recipients”) that is required to file a 1099-MISC for services performed by an independent contractor (“service provider”) must make a Report of Independent Contractors on Form DE 542. Forms can be obtained at www.edd.ca.gov under forms & publications.
A “service-recipient” means any individual, person, corporation, association, or partnership, or agent thereof, doing business in California, deriving trade or business income from sources within this State, or in any manner in the course of trade or business subject to the laws of this State.
A “service provider” or independent contractor is defined as an individual who is not an employee of the business or government entity for California purposes and who receives compensation or executes a contract for services performed for that business or government entity either in or outside of California.
Basically, the rules apply to sole proprietors. You do not have to report “service providers” who are incorporated, general partnerships, or Limited Liability Companies.
The “contractor” does not have to live in California or work here. They must be reported if they work for you and you are a California business. However, if your business is out of state, but you hire a contractor to work in California, they must be reported.
The report is due within twenty (20) days of EITHER making payments totaling $600 or more OR entering into a contract for $600 or more with an independent contractor in any calendar year, whichever is earlier.
The following information must be reported to the Employment Development Department (EDD Form DE-542):
Business or government entity’s (service recipient):
Federal employer identification number
California employer account number
Social security number (if no FEIN or EDD#)
Business name, address, and telephone number
Independent contractor’s (service provider):
First name, middle initial, and last name
Social Security Number
Start date of contract
Amount of contract
Contract expiration date
Ongoing contract (if applicable)
If you have any questions on these rules, please contact us. HOW DO I FILE THE FORMS?
All payers are welcome to file electronically through FIRE (Filing Information Returns Electronically) System. The IRS does not allow the filing on magnetic media as FIRE is the only acceptable electronic method of filing. Additional information on FIRE is found at http://fire.irs.gov and IRS Publication 1220. If you have a personal computer with internet access, you can file electronically by obtaining approval from the IRS with Form 4419. Please allow at least 30 days before the filing due date to file Form 4419. If you file 250 or more returns (per return type), you MUST file electronically. For electronic filing assistance, call IRS at (866) 455-7438. If you cannot file electronically, paper Forms 1099 are submitted to the IRS along with the transmittal Form 1096, however, failure to file electronically may subject you to penalties. The FIRE filing requirement may not apply if you apply for and receive a hardship waiver (Form 8508). For forms and additional information, see the telephone numbers listed below.
For California businesses file 1096 and 1099 to the following address: Department of Treasury, Internal Revenue Service Center, Kansas City, MO 64999.
INTERNAL REVENUE SERVICE FORMS AND ASSISTANCE (TOLL FREE)
Tax Forms 1-800-829-3676
Assistance for Individuals 1-800-829-1040
Refund/Tax Information 1-800-829-4477
Small Business & Specialty Tax Line 1-800-829-4933
Tele-TIN, Employer Identification Number (CA) 1-800-829-4933
Taxpayer Advocate 1-877-777-4778
Tax Exempt Entity 1-877-829-5500
Tele-tax (recorded tax information by topic) 1-800-829-4477
Taxpayer Advocacy Panel 1-888-912-1227
Electronic Federal Tax Payment System 1-800-555-4477
The IRS and FTB have stepped up their enforcement on misclassifying employees as independent contractors. Employers should place close scrutiny on properly classifying individuals providing services as an employee versus independent contractors or risk severe fines, penalties and/or back payroll taxes. The IRS has recently announced a new IRS voluntary classification settlement program (VCSP) that provides significant relief from federal employment taxes for eligible taxpayers that agree to prospectively treat workers as employees. When processing 1099-MISC, BHL has not analyzed the classification of the 1099 recipients. We will be happy to assist you, as a separate engagement, providing guidance in the classification of employees/independent contractors. If you have any questions in the matter, please call us at (714) 556-8140.
NEED HELP WITH FILING FORMS 1099?
Belden Hiramoto Liu & Co., LLP has computer software able to prepare any and all 1099 forms required. If you require assistance in preparing 1099 forms and related transmittals, please contact us as soon as possible at (714) 556-8140.
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