August 16, 2018
Author: BA Jones, CPA
Organization: BAJones, CPA

I. PREPARATION
A. TYPES of 1099's

The 1099 series is used to report miscellaneous income to the IRS. Oddly, not all of the forms used to report miscellaneous income begin with 1099. Also, not all of the forms of miscellaneous income are listed on the 1096 transmittal. Finally, it is likely they will invent additional forms as the tax code continues to evolve. Nonetheless, following are the most common types of miscellaneous income as included on the Form 1096 transmittal (so far) for Tax Year 2012.

• W?2G Certain Gambling Winnings
• 1097?BTC Bond Tax Credit
• 1098 Mortgage Interest Statement
• 1098?C Contributions of Motor Vehicles, Boats, Airplanes
• 1098?E Student Loan Interest Statement
• 1098?T Tuition Statement
• 1099?A Acquisition or Abandonment of Secured Porperty
• 1099?B Proceeds from Broker and Barter Exchange Transactions
• 1099?C Cancellation of Debt
• 1099?CAP Changes in Corporate Control and Capital Structure
• 1099?DIV Dividends and Distributions
• 1099?G Certain Government Payments
• 1099?H Health Coverage Tax Credit Advance Payments
• 1099?INT Interest Income
• 1099?K Merchant Card and Third Party Network Payments
• 1099?LTC Long?Term Care and Accelerated Death Benefits
• 1099?MISC Miscellaneous Income
• 1099?OID Original Issue Discount
• 1099?PATR Taxable Distributions Received from Cooperatives
• 1099?Q Payments from Qualified Education Programs
• 1099?R Distributions from Pensions, Annuities, Retirement or Profit?Sharing Plans, IRAs, Insurance Contracts, Etc.
• 1099?S Proceeds from Real Estate Transactions
• 1099?SA Distributions from HSA, Archer MSA, or Medicare Advantage MSA
• 3921 Exercise of an Incentive Stock Option Under Section 422(b)
• 3922 Transfer of Stock Acquired through an Employee Stock Purchase Plan under Section 423(c)
• 5498 IRA Contribution Information
• 5498?ESA Coverdell ESA Contribution Information
• 5498?SA HSA, Archer MSA, or Medicare Advantage MSA Information

Each of the above has a minimum reporting threshold, a due date for sending to the IRS, and a due date for distributing to the recipient. Due to numerous exceptions, the full schedule is not included here. Please visit the IRS website for additional information. Our emphasis is on Form 1099?Misc. So, no, we will not review all of these today! As time permits, our lecture may be able to review some of the more common items at the end.

B. Form 1096

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Each of the above are \"transmitted\" to the IRS with a sort of \"cover sheet\" which is sometimes referred to as a \"transmittal,\" and officially named Form 1096. Please see the illustration below. Each type of information return gets its own Form 1096.

Example #1: Your bank pays you $11 in interest on your savings account for the year. The bank will send you a Form 1099?INT, and it will also send a copy to the IRS, together with all the other copies of 1099?INT, and a Form 1096. You never see the 1096.

Example #2: You pay your one and only subcontractor $1000 during the year, so you now complete Form 1099 for the subcontractor, and Form 1096 as a \"cover sheet\" for the IRS. If you have additional subcontractors meeting the reporting requirement, they also need 1099's, and all 1099's are combined and sent with the same Form 1096, which you also prepare.

C. Form W?9
1. What is Form W?9?
Form W?9 is how you get the information from your subcontractor so that you can fill out Form 1099. For instance, what is your subcontractor's real name? spelling? What is your subcontractor's taxpayer identification number? address? To discover this information, you simply give your subcontractor a copy of Form W?9. They are supposed to understand it is their responsibility to fill out the form completely and accurately, and to return it to you in a timely manner.

2. How long to keep Form W?9?
It is a good idea to keep all forms 1099, even if the subcontractor ends up not needing a 1099 at the end of the year. How long should you keep it? Employment information is to be kept for 4 years after the tax return filings, but personally I recommend somewhere between 10 years and forever.

3.How to fill out Form W?9?
We are using the most recent revision of Form W?9, dated August 2013. (Curiously, the form was released on August 29, and the instructions on August 30.)

NAME
You should note that the NAME box has \"as shown on your income tax return\" in parenthesis. With this latest revision of the form, the instructions have been updated to more fully explain the intention of this parenthesis. This is more important than people realize, and could easily be used to exact penalties. It is best explained by example.

Example #1: You hire Ted, of Ted's Painting, to repaint the office. The estimate is $5000. This is easily over the threshold, so Ted is likely to need a 1099 at the end of the year. You give Ted a W?9 to complete, preferably before the work begins so that you will have the information before you have to pay him.

For the purposes of 1099's, your primary need is to know how Ted files his taxes. Is he a sole proprietor? An LLC? A one?man LLC? A corporation? A corporation will file a particular form, a multi?member LLC and a partnership will file a particular form, but a sole proprietor or a sole?member LLC will file their taxes on a Schedule C, which is a subset of their personal 1040.

Thus, by asking the subcontractor for the name \"as shown on [their] income tax form,\" the government is helping them to realize what information to provide on subsequent lines. That is, if the business files its own income tax form (1120, 1065) they should put the name of the business: Ted's Painting, Inc. But if the business files its taxes on Schedule C along with the owner's other personal income information, they should put their personal name on the NAME line. Of course, if Ted turns out to be an individual filer, you need to know his last name. You also need to know if Ted is really Theodor, or perhaps Edward. Or maybe his real name is Charles, but he goes by a nickname based on his middle name: Charles Edward Something.

BUSINESS NAME/DISREGARDED ENTITY NAME, IF DIFFERENT FROM ABOVE

This is where Ted, as a sole proprietor or sole?member LLC can put \"Ted's Painting.\" However, it is also possible for a corporation or partnership to use a dba.

Example #2: You hire Ted of Ted's Painting, but he is actually a corporation called Tri?County Painters, Inc., with a dba of Ted's Painting. While you may write the check to Ted's Painting, you had better write the 1099 to Tri?County Painters, Inc. Absent the W?9, you would not know this.

CHECK THE APPROPRIATE BOX FOR FEDERAL TAX CLASSIFICATION
This section causes more unnecessary grief for payers and subcontractors alike. The updated instructions might help taxpayers to check the correct box. However, based on the information in the NAME box, this is actually straight?forward. What type of tax return is filed by the entity in the NAME box?

Example #3:

Charles Edward Something = individual, so check box individual/sole proprietor
Tri?County Painters, Inc. = C Corp, so check C Corporation
Tri?County Painters, Inc. = S Corp, so check S Corporatio
Ted and Son, Painters = partnership, so check Partnership
Estate of Ted Something = estate, so check Trust/Estate

Ted and Son, LLC = LLC, so check Limited Liability Company, but then they have to also say if they file as a C Corp, and S Corp, or a Partnership by entering C, S, or P in the box.

ADDRESS
This is the legal street address for the entity in the NAME box.

CITY STATE ZIP
This is the city, state, and zip code for the entity in the NAME box.

LIST ACCOUNT NUMBERS
Optional. This is generally for internal use by the payer regarding the payee.

EXEMPTIONS
Again, we are in trouble. So far, generally speaking, unless an entity has been officially instructed that it needs backup withholding, an entity considers itself exempt from backup withholding. The actual language is difficult. The form encourages taxpayers to “see instructions.” In my personal opinion, any time you need an entire column of small print to figure out how – or if – to fill out 2 small boxes, there will be confusion.

Please note, this section of the form used to be a simple checkbox called Exempt Payee, and you checked this box if you were exempt from backup withholding. The 2013 version seems to expect you to know what type of exemption you have. (That is, exemption from backup withholding.) Most people are unaware that there could be types, and most people equate the term “exemptions” on a form such as this with “exemptions” on a W?4. While Form W?9 is viewed by ordinary business folk as a means to notify both the receiver of funds (subcontractor) and the taxing authorities (IRS, NJ) of the amount of expense being taken on behalf of that receiver of funds, the possibility of withholding has been greatly expanded. Let’s investigate.

1. Exempt Payee Code: The instructions provide 13 choices, a table, and 2 footnotes. While “corporation” is specifically listed, none of the 13 choices sound like an ordinary businessman or subcontractor who makes quarterly estimated payments in advance of the year end.
2. 
   Exemption from FATCA Reporting Code: As if finding one’s exemption code weren’t hard enough, there is now a new type of exemption, complete with a new acronym. FATCA stands for Foreign Accounts Tax Compliance Act. This checkbox concerns international issues, and again, there are 13 choices.

REQUESTOR'S NAME AND ADDRESS
Optional. However, it can be useful when you give the W?9 to your subcontractor. If you put your name and address in this box, it might encourage your subcontractor to give the form back to you.

PART I. TAXPAYER IDENTIFICATION NUMBER (TIN)
Our final unnecessary trouble spot. The TIN should simply match the entity in the NAME box and align with the \"appropriate box for federal tax classification.\" Thus, Charles Edward Something needs to give his social security number. An entity that files a 1065, 1120, 1120S, etc., would give the FEIN of that entity, and so on. The updated instructions include a paragraph on the form and nearly another full page of fine print (including a chart with 14 choices) on pages 3 and 4 of the formal instructions. Essentially, the IRS now allows sole proprietors to use their FEIN instead of their SSN, though the instructions state “The IRS prefers that you use your SSN.” The instructions are not as clear regarding single?member LLC’s; indeed, the instructions might even seem contradictory.

PART II.  - CERTIFICATION

This is where the subcontractor signs, under penalties of perjury, that everything written on the form is true, particularly as regards backup withholding. The first 3 items follow previous versions of the form, but a 4th line regarding international issues (FATCA) has been added.

OBSERVATION
An important take?away could be the shift in emphasis from identification of the subcontractor by tax form to certification of exemption from backup withholding, and the great pains that have been taken to adapt the form for offshore issues.

CONCLUDING REMARKS
You are required to maintain confidentiality of information obtained on Form W?9 relating the taxpayer's identity. You may use such information only to comply with the tax laws. See also, penalties.

D. How to acquire forms

Currently, form 1099 and Form 1096 can not be downloaded from the internet. Instead, you must acquire official paper for the IRS copies. The IRS maintains their special \"red ink\" allows for better machine readability.

1. Order in advance from the IRS call 1?800?TAX FORM (1?800?829?3676) go to www.irs.gov, search \"online ordering for information returns,\" and complete the paperwork.
2. Purchase from office supply store or catalog
3. Pickup limited amounts directly from IRS, or possibly your public library Form W?9 is easily obtained from the internet. You can simply search \"W9\" and the top item will probably be the form, in a fillable pdf format. You can send the link to your subcontractor, or you can save the form as a pdf on your computer (fill in the requestor's info!) and then attach it to an email for your subcontractor. Also, if you need to supply a W?9 because you are a subcontractor, you can fill out the pdf version, and then print as many copies as you need.

II. FILLING OUT FORM 1099?MISC

PAYER'S NAME...
The first large box is for your name, address, state, zip code, and telephone number. Telephone number is printed on the form, but not referenced in the instructions. Software programs which transmit 1099's do not uniformly include telephone number, and I have not seen any issues relating to lack of telephone number on the form.

PAYER'S FEDERAL IDENTIFICATION NUMBER
This is YOUR entity's FEIN (or SSN, as necessary.)

RECIPIENT'S IDENTIFICATION NUMBER
This is your subcontractor's TIN. It is the SSN or FEIN from the W?9.

RECIPIENT'S NAME...
This information is from the W?9. Use the information in the NAME box, the ADDRESS box, and the CITY/STATE/ZIP box. The subcontractor generally appreciates seeing the DBA line as well, but technically, the IRS won't care.

ACCOUNT NUMBER
This is for your internal purposes. It can be useful if you have multiple accounts for a recipient for whom you are filing more than 1 information return of the same type.

2ND TIN NOT.
This stands for \"2nd TIN Notice,\" and means within 3 years, for more than 1 tax year, you have received 2 notices from the IRS stating that the TIN for your subcontractor is incorrect. If you mark this box, they will stop sending notices.

Box 1: RENTS
Do you pay $600 or more to rent anything? Yes, this includes not only the rent for your office, but also rent paid for pasture land, equipment, and even coin?operated amusements, etc. If you rent equipment, and the rental price covers both the equipment and the operator, the equipment portion goes here, but the operator portion goes in Box 7.

If you pay your rent to a real estate agent, you do not have to report it here. However, the real estate agent must use this box to report the rent paid to the property owner.

Box 2: ROYALTIES
Royalties could be from oil, gas, mineral properties, copyrights, trademarks, and patents. Reportable royalty payments begin at $10. Royalties must be reported gross, not net of fees, commissions, or other expenses.

Box 3: OTHER INCOME
Payments of $600 or more of other income are reported in Box 3. This includes:

• prizes to a non?employee
• awards
• taxable damages
• Indian gaming profits
• payments made to the beneficiary of a deceased employee
• termination payments to former self?employed insurance salespeople
• payments made to participants in medical research
• punitive damages
• payments made to foreign agricultural worker without a valid TIN ? and be sure to withhold and remit 28% for backup withholding
• Additionally, anything not covered elsewhere can be included here.

Box 4: FEDERAL INCOME TAX WITHHELD
Did you withhold any money (from the payment you made) on behalf of the IRS? Put that amount here.

Box 5: FISHING BOAT PROCEEDS
In some parts of the country, fishing boat proceeds are big business, and there are many pages of rules talking about fish. Suffice it to say, a subcontractor on a fishing boat might expect to receive a 1099?Misc with an amount in Box 5.

Box 6: MEDICAL AND HEALTH CARE PAYMENTS
A health insurance company uses this box to report how much it paid to particular doctors or hospitals, etc. You do NOT use this box to report health insurance premiums.

Box 7: NONEMPLOYEE COMPENSATION
The biggie! This is where you put the amounts you pay to your subcontractors who received $600 or more in one calendar year. If you withheld from the payment, you should put the gross, not the net amount paid.

Example: You paid the subcontractor $1000, but you only gave him $720 and withheld 28%, $280, because he did not give you a W?9. Put $280 in Box 4, and $1000 in Box 7.

Following is a short list of common Box 7 payment amounts:

• Attorney ? even if a corporation
• Accountant
• Architect
• Business Consultant
• Engineer
• Referral Payments
• Fee?splitting Arrangements
• Expert Witnesses
• By an insurance company to the repair shop for labor (parts may be included if they are incidental)
• Contractor/Subcontractor/Independent Contractor
• Nonemployee Entertainers
• Bartering between Businesses
• Taxable Fringe Benefits for Non?Employees
• Gross Oil and Gas Payments for a Working Interest
• Commissions to non?employee Insurance Agent
• Commissions to Licensed Lottery Ticket Sales Agent
• Fish Purchases for Cash
• Director's Fees
• Golden Parachute Payments
• Non Qualified Deferred Comp

Note: Do not include: life insurance premiums, employee wages, travel or auto allowance, bonus payments, scholarships, grants, separate amounts for sales tax. Caution! Box 3 vs Box 7: There is considerable confusion regarding when to use which of these boxes. This is because Box 3 flows directly to an individual's 1040, page 1, line 21, Other Income, while Box 7 travels to the individual's 1040, page 1, line 12, Business Income or Loss, via Schedule C. Schedule C allows a deduction for appropriate business expenses, but also subjects the net income to self?employment tax.

Box 8: SUBSTITUTE PAYMENTS IN LIEU OF DIVIDENDS OR INTEREST
This is a brokerage activity. If your broker loans your securities, and then receives (on your behalf) a payment in connection with this, the amount would go in Box 8.Box 9: PAYER MADE DIRECT SALES OF $5,000...

This item is simply a check box. It is frequently used by multi?level marketing organizations to indicate that the recipient made sales of $5,000 or more of consumer products. It is frequently used in connection with commission sales.

Box 10: CROP INSURANCE PROCEEDS
Farmers who insure their crops may from time to time, due to calamity, etc., receive an amount from their insurance company because they cannot sell their damaged crops. The insurance company uses this line to report the amount paid to each farmer.

Box 11: FOREIGN TAX PAID
Indicate any amounts paid for non?USA taxes here.

Box 12: FOREIGN COUNTRY OR US POSSESSION
Disclose the non?USA country to which Box 11’s taxes were paid. There is only room for one country. If additional countries must be disclosed due to taxes being paid to more than 1 non?USA country, additional forms will be needed.

Box 13: EXCESS GOLDEN PARACHUTE PAYMENTS
Excess Golden Parachute Payments subject to a 20% excise tax are handily reported on this line to make it easier for the IRS to track and tax.

Box 14: GROSS PROCEEDS PAID TO AN ATTORNEY
Don't be confused! If you pay the attorney for services, use Box 7. However, if you make a payment to an attorney as a result of a legal matter, and on behalf of some third party, and the attorney is going to distribute the funds to that party or among various expenses, then you use Box 14.

Box 15a: SECTION 409A DEFERRALS
Optional ? See Box 15b

Box 15b: SECTION 409A INCOME
Payments in connection with non?qualified deferred compensation plans may need to be included in income. Generally, this is because the plan failed to qualify under Section 409A. If any amounts are considered deferred, those amounts may also be indicated in Box 15a, but, again, this is optional.

The Box 15b amount is also includable in Box 7. Thus, this section is again used to make it easier for the IRS to track and tax.

Boxes 16, 17, and 18: STATE INFO
These boxes are provided for the convenience of the states, and they are not required. These boxes are most useful if you report to 2 states. They allow you to divide the federal amount between the 2 states. Notice the boxes have a dotted line dividing upper and lower halves. Put one state's information in the upper half, and the other state's information in the lower half.

Box 16 STATE TAX WITHHELD
Did you withhold any money (from the payment you made) on behalf of New Jersey or another state? Put that amount here.

Box 17: STATE/PAYER's STATE NO.
If your state requires you to use an identifying number that is not the same as your PAYER'S FEDERAL IDENTIFICATION NUMBER discussed above, you may put that number here. New Jersey is satisfied with your FEIN.

Box 18: STATE INCOME
If the amount you are reporting is different for state purposes, such as when part is for NJ and part is for PA, you can properly allocate the amounts between the states.

COPIES

You should note that Form 1099 has particular numbered pages for various uses.

Copy A: IRS
Copy B: Recipient
Copy C: Payee's records for IRS
Copy 1: State
Copy 2: Payee's records for state

III. FILLING OUT FORM 1096

FILER'S NAME/STREET ADDRESS/CITY, STATE, ZIP
The entity that is issuing the forms should put its name, etc., in this section.

NAME OF PERSON TO CONTACT
This is the name of the individual who will answer any questions should they arise. Consider, who is the responsible party in the entity? The forms may be prepared by a clerk, but signed by a manager; thus, the manager could be the responsible party, and so the clerk should fill out the name and contact information of the manager.

TELEPHONE NUMBER
Again, indicate the direct line to the responsible party, including any extension.

EMAIL ADDRESS
Again, indicate the email address of the responsible party.

FAX NUMBER
Again, indicate the fax number which will most easily reach the responsible party.

1. EMPLOYER IDENTIFICATION NUMBER
   This is the EIN for the entity (not the responsible party!)

1. SOCIAL SECURITY NUMBER
   If the entity is an individual person, they may only have a Social Security Number. It is fine to use the SSN. If you complete the box for FEIN, do not complete the box for SSN.

1. TOTAL NUMBER OF FORMS
   Count the 1099's you are sending, and put the total in this box.

1. FEDERAL INCOME TAX WITHHELD
   Remember Box 4 on the 1099?Misc? If you withheld any money (from the payments you made) on behalf of the IRS, add up the respective amounts and put the total here.

1. TOTAL AMOUNT REPORTED WITH THIS FORM 1096
   Yes, combine all the amounts you reported on each Form 1099 into one amount and put the total into this box on the 1096. Yes, you are combining rent with fishing boat proceeds with excess golden parachute payments. In other words, this box is the total of Form 1099 boxes 1 + 2 + 3 + 5 + 6 + 7 + 8 + 10 + 13 +14 + 15b. Be careful not to include boxes 4, 15a, 16, or 18.

1. ENTER AN \"X\" IN ONLY ONE BOX BELOW TO INDICATE THE TYPE OF FORM...Our focus is 1099?Misc. Thus, you should enter the \"X\" in the third box on the second line, 1099?MISC. If you are preparing another type of information return, be sure to use a separate 1096, and to check the appropriate box for that type.

1. IF THIS IS YOUR FINAL RETURN, ENTER AN \"X\" HERE...
   This should be obvious. If you have gone out of business and will not be playing this game another time, enter an \"X\" in this box.

SIGNATURE... TITLE... DATE
The 1096 needs to be signed by a responsible party. The responsible party is probably that manager whose name was entered above. The responsible party's title should also be indicated. This could be \"owner\" if the responsible party is a sole proprietor. Other likely titles are partner, managing partner, president, vice?president, etc. Finally, the date the responsible party signs the form should be indicated as well.

IV FILING

A. What to send?
Send the \"red ink\" copy of Form 1099 and the \"red ink\" copies of Form 1099?Misc, also called \"Copy A.\"

B. Where to send?
NJ, PA, and NY, send them to: Department of the Treasury Internal Revenue Service CenterAustin, TX 73301

C. When to send?
The due date for the recipient is January 31 of the year following. This would be the 1099?Misc marked Copy B. If you are sending paper copies (\"red ink,\") the due date for the IRS is February 28 of the year following. If you are able to send the forms electronically, the due date for the IRS is March 31 of the year following. (Yes, you get an additional month.)

D. Electronic Submission

The IRS loves this approach. However, they recognize it is not necessarily efficient for smaller companies without access to appropriate software. The system is called FIRE, which stands for Filing Information Returns Electronically. Using it requires a Transmitter Code for which you must apply. Some versions of professional accounting software will function as your transmitter through the FIRE system. See professional accounting software, below.

E. Extensions?

Yes. For fewer than 10 recipients, use Form 8809 or write a letter stating:
Payer Name

Payer TIN

Payer Address

Type of Return (Form 1099?Misc, for example) state that you are requesting additional time to provide items to recipients state reason for delay sign and date

Send the form/letter to: Internal Revenue Service
Information Returns Branch
Attn: Extension of Time Coordinator
240 Murall Drive
Mail Stop 4360
Kearneysville, WV 25430

 Postmark must be by date the items are due to the recipients. If you are approved, generally, you will be given an extra 30 days. For 10 or more recipients: you must file this electronically via the FIRE system.

F. Professional Accounting Software
Some versions of professional accounting software will happily function as your transmitter through the FIRE system. Also, there are specific vendors who, for a fee, will give you access to their limited use software. No recommendations are made.

However, here are some cautions and insights into using a popular package.

1. Code your vendors!
   Each vendor has its own \"data\" screen. Click about to find a box \"eligible for 1099\" and a box where you can fill in the vendor's FEIN or SSN, as applicable. Make sure you have a complete and correct name and address. Remember Ted!

1. Check your preferences!
   Your software may require you to tell it whether you do or do not issue 1099's.

1. Map your accounts!
   Your software probably knows the categories the IRS will use, and the thresholds for filing eligibility, but it does not know which of your accounts matches each of the IRS categories. You need to provide this link through a process known as mapping.

1. If you have done all of the above, at year end, you can probably file quickly. The process will probably be a submenu under vendors. Be sure to PROOFREAD before you hit print or send! Recipient Copies ? You may be able to provide online copies of the 1099's for your vendors with an email notification, or you may have to print them out on plain paper and mail them.
   
   IRS Copies ? You may be able to file electronically, or you may have to print the IRS copies and mail them manually. Be sure to print on \"red ink\" paper. Don't forget your 1096 transmittal, also on \"red ink\" paper.

G. State Copies

You may be able to file electronically, or you may have to print the state copies and mail them manually. Printing on plain paper is fine. Be careful! Your software may not include the appropriate state transmittal. States receive Copy 1 of the 1099?Misc.

For NJ, you need a transmittal. You can do an internet search for: NJ W3 UNC. This is a 2 page form! Only part of it is fillable pdf. The address is on the form.

For NY, you do not have to do anything as they share information directly with the IRS, but PA recently determined they prefer to receive their own copies, like NJ.

V. MISCELLANEOUS

A. Errors

It is sad, but errors do happen. If you find the error, you are expected to correct it \"as soon as possible.\" If the IRS finds the error, they may request that you file corrected information. The IRS considers there are 2 types of errors.

1. Incorrect money amount, code, checkbox, or payee name, or a return was filed when it should not have been filed:

• Prepare a new Form 1099.
• Enter an \"X\" in the CORRECTED box at the top.
• Recommended: Put a date next to the CORRECTED box at the top.
• Re?enter all info as before, but use corrected info as necessary.
• Prepare a new Form 1096 ? just for the corrected form(s).
• Do not include a copy of the original.

1. Incorrect Payee TIN, no payee TIN on original, incorrect name and address, or the original return was the wrong type:

• Prepare a new Form 1099.
• Enter an \"X\" in the CORRECTED box at the top.
• Recommended: Put a date next to the CORRECTED box at the top.
• Re?enter all info as before, without corrections, but put \"0\" for any money amounts.
• Prepare yet another new Form 1099.
• Do not put an \"X\" in the CORRECTED box at the top.
• Enter all info as before, but use corrected info as necessary.
• Prepare a new Form 1096 (or 2, if you are correcting form type.)
• Explain the reason for the correction in the margin at the bottom. Example: write \"filed
• to correct TIN,\" or \"filed to correct name and address.\"
• Do not include a copy of the original.

B. Penalties

1. Penalties apply to paper filers and to electronic filers.
2. Penalties are imposed on the person required to file the forms.
3. Possible reasons for penalties include: file late without showing reasonable cause, fail to include all necessary information, information provided is incorrect, you filed by paper when you were supposed to file electronically, or your paper forms were not machine readable.

1. Penalties
   File correctly within 30 days after deadline: $30 per return, max $250,000 per year ($75,000 for small business.) File correctly between 30 days after deadline up to August 1: $60 per return, max $500,000 per year, ($200,000 for small business.) File correctly after August 1: $100 per return, max $1,500,000 per year ($500,000 for small business.)Do not file at all: $100 per return, max $1,500,000 per year ($500,000 for small business.) Intentional disregard of filing requirements: $250 minimum per return, no max.Failure to furnish correct payee statements: Same timeline as above, same amounts.

In other words, this doubles the penalties above.

1. Exceptions! Yes, they allow for exceptions on a case by case basis.
2. Small business: average annual gross receipts for the 3 most recent tax years (or period in existence if less than 3 years) ending the year before the year in which the returns were due are $5 million or less.

C. Backup Withholding

1. 28%

The IRS expects you to withhold 28% from any subcontractor who is not exempt from backup withholding. In order for you to know if they are exempt, they are supposed to mark the box EXEMPT PAYEE on the W?9. Obviously, if they have not supplied a W?9, you do not have their representation that they are not subject to backup withholding, and so you are expected to withhold at the 28% rate. Or, you may receive notification from the IRS saying they must have backup withholding. Once you receive this notice, you have 30 days to commence withholding 28% from any payments to a particular subcontractor. Alternately, if you have been withholding, and you receive notification that it is no longer necessary, you have 30 days to cease withholding.

2: So, how do you remit the 28%?
If the total amount of backup withholding is under $2500 for the year, you can use Form 945, Annual Return of Withheld Federal Income Tax, and voucher 945?V to remit the amount. Check should be payable to United States Treasury.

If the total annual amount of backup withholding is $2500 or more for the year, you should be enrolled in the Electronic Federal Tax Payment System, or EFTPS, so that you can make payments more frequently. Then, file Form 945 with appropriate sub?schedules at year end. A monthly depositor will complete line 7 showing each of the monthly payments made. A semi?monthly depositor will complete Form 945, but use Form 945?A instead of filling in line 7. Please note, Form 945?A shows payments made, not amounts withheld.

D. Foreign Entities

1. You are the foreign entity
   If you are a foreign entity doing business in the USA, and you pay subcontractors who file income tax in the USA, you will be expected to issue 1099's, and to abide by all withholding regulations, etc.

1. You are the subcontractor.
   If you are a subcontractor who works in the USA, you will be expected to file income taxes in the USA, and this includes income received from foreign entities, see #1 above. Exceptions owing to foreign treaties are not the subject of this presentation.

If you receive a 1099 from a foreign entity, you will have to paper file your income taxes.