IAPP Sun Coast Chapter Meeting Sarasota, FL November 16, 2010

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1 IAPP Sun Coast Chapter Meeting Sarasota, FL November 16, 2010 Sean C. Evans DuCharme, McMillen & Associates, Inc. Director

2 Major Changes to 1099 Misc. Reporting The recently passed Patient Protection & Affordable Care Act (H.R. 3590) or Healthcare Bill included changes to information reporting requirements starting in 2012 as follows: Elimination of the corporate exemption for 1099 reporting. AP departments will be required to report 1099 forms for most entities that do business with their organizations. Until now, this applied only to service providers that invoiced the business for payments of more than $600 a year but excluded service providers that were incorporated. Slide 2

3 Major Changes to 1099 Misc. Reporting Addition of tangible property in 1099 reporting requirements. AP departments will have to submit 1099s for vendors that provide not just services, as dictated by current law, but also any that provide them more than $600 worth of physical goods in a calendar year. Reporting of insurance premium payments. Employers will be required to report on W-2 forms the value of the healthcare they re offering to their workers. It s still unclear whether that applies to just the part paid by the employer, just the part paid by the employee, or both. Slide 3

4 Keys Issues to Consider How many additional 1099 forms does that mean to your AP Department? Does your ERP system have reporting capability or do you need to prepare for automation of your 1099 reporting? Will there be a requirement to break out goods and services on the 1099? When will the new 1099 form be created and released? Will there be a new W-9 form to accept from our vendors? Will the reporting deadlines remain the same? What is the best steps in begin automating the new requirements? Slide 4

5 Continued Legislative Outlook Mandatory 3% back-up withholdings Governmental Requirement to begin 3% withholding on payments has been postponed under already signed Stimulus package until December 31, 2011 Mandatory use of IRS TIN matching System-Still under consideration Increase of Back-Up Withholdings from 28% to 31% if the federal tax cuts are allowed to expire. New P-Card Regulations proposed. Slide 5

6 Who Gets a Form 1099? Is this the type of payee that gets a Form 1099? Some payees are exempt from Form 1099 reporting: EXEMPT PAYEES Is this the type of payment that gets a Form 1099? Taxable does not necessarily mean reportable There are over 20 Form 1099 return types. We will first describe Form 1099 MISC (the form everyone in the room has in common). Slide 6

7 Form 1099-MISC: Box 1 Rents Box 2 Royalties Box 3 Other income Box 4 Federal Income Tax Withheld Box 6 Medical and health care payments Box 7 Non-employee compensation Box 9 Direct sales of consumer products Box 14 Gross proceeds paid to an attorney Boxes 16, 17, 18 for State Reporting Slide 7

8 BOX 1: Rent Not just real estate rental: you are paying for the use of an item Includes anything rented, such as machinery or equipment rental Capital lease: you are purchasing the item Not reportable as rent Operating lease: reportable as rent Regular exemptions apply (corporation, tax- exempt, government entity as well as $600 limit) Slide 8

9 BOX 2: Royalties Report payments $10 and above You paid for the right to use, but the payee owns the property. Report surface royalties in Box 1 Slide 9

10 BOX 3: Other Income The payee didn t do any work to earn this income (otherwise it would be reported in Box 7 and subject to self employment tax). If a settlement payment is reportable to a claimant, report in box 3 (unless for back pay, which is reported on a Form W-2) Challenge: awards for services performed are Box 7 reportable. Slide 10

11 BOX 4: Federal Income Tax Withheld Report any backup withheld amounts in this box Backup withholding rate is 28% The backup withheld amount is included in the gross amount in the appropriate box(es). Slide 11

12 BOX 6: Medical and Health Care Payments NO CORPORATE EXEMPTION for this box but $600 limit applies No reporting for things Report medical service payments: you paid to get someone better... Slide 12

13 BOX 6: Medical and Health Care Payments Medical services provider : Think in broad terms Include physical therapists, massage therapists, psychotherapists, mental health counselors, acupuncturists, employee assistance, executive physicals, etc. If payee is a type that offers medical and health care services, report ALL payments to that payee, regardless of what each payment is for. Pre-employment physicals, drug screening, or expert testimony performed by company that is a medical services provider are reported in box 6. Slide 13

14 BOX 7: Nonemployee Compensation Any payments for service (unless medical services, which go in box 6) Not just payments to free-lancers and independent contractors; any payment for service. Billed for parts and labor? Report total amount unless you have the original receipts. Attorney payments when the attorney performed services for you (No corporate exemption) Slide 14

15 BOX 14: Gross Proceeds Legal Services Payments Box 7 if attorney performed services for you Box 14 if attorney performed services for someone else, but you paid (e.g. settlement) Even if you know how much opposing counsel is getting, report in box 14 (as per Middleman regs, T.D. 9010) $600 threshold for both boxes No corporate exemption If attorney s or law firm s name is not on check, no reporting required to attorney or law firm Slide 15

16 Settlement Payments Settlements paid to a claimant are reportable if such payments are taxable to the claimant Non-taxable settlements Personal injury or sickness Medical expense reimbursement Property damage Taxable settlements Discrimination, libel, harassment, defamation Slide 16

17 Settlement Reporting Non Taxable Settlement Reporting Claimant: No reporting Attorney: Report total in Box 14 Taxable Settlement Reporting Claimant: Report payment in Box 3 Attorney: Report total in Box 14 Slide 17

18 How To Get a TIN If paying miscellaneous payments... (Rents, commissions, nonemployee compensation,, etc.) the payee must furnish the payee s [TIN]...either orally or in writing. Except as provided in [response to first B- Notice letter], the payee is not required to certify under penalties of perjury that [TIN] is correct... ( (d) of backup withholding regulations) Slide 18

19 P-Card Regulations-Effective 2011 Under new section 6050W, any payment settlement entity making payments will be required to process 1099 reporting to all appropriate payees. Only settlement entities who make the payments are required under this proposal not just a credit card companies. Card holder will still be required to report other non P- Card payments to the same vendors Proposed regulation applies if: Aggregate amount of payments exceeds $20,000 AND Aggregate number of transactions exceeds 200. Slide 19

20 Nonresident Alien (NRA) Reporting Basics Do NOT get Forms W-9 from nonresident aliens Do NOT report at year-end on a Form 1099 to a nonresident alien Get either a Form 8233 or one of the four types of Forms W-8 from a nonresident alien Report at year-end on a Form 1042-S to a nonresident alien Slide 20

21 Nonresident Alien (NRA) Reporting Basics Reportable payments to nonresident aliens are subject to 30% withholding...unless payee provides documentation for exemption from, or lower rate of, withholding Main reasons for exemption from withholding: Tax treaty rate Foreign company already files U.S. tax return Only have to report U.S.-Source Income For services income, you look to WHERE the work was performed Slide 21

22 Summary of Sourcing rules Personal services Dividends Interest Rentals Royalties patents, copyrights Royalties natural resources Scholarships, fellowship grants Pensions Promises not to compete, sign on bonus Where performed Where incorporated Residence of payer (where incorporated) Where property is located Where property is used Where property is located Residence of payee Where services were performed, Rev. Proc Place where right given up Slide 22

23 Nonresident Alien (NRA) Reporting Basics Tax treaty rates shown in two tables in the back of IRS Publication 515; also in Pub. 901, Tax Treaties NRA must have U.S. TIN to qualify for tax treaty rates (as of January 1, 2001) Individual NRA: ITIN Form W-7 Business entity NRA: EIN Form SS-4 No corporate exemption for NRA reporting; no dollar threshold Slide 23

24 Form 8233 Foreign individuals claiming treaty benefits or reduced withholding on compensation use: Form 8233, Exemption From Withholding on Compensation for Independent (and Certain Dependent) Personal Services of a Nonresident Alien Individual (Dec., 2001) Must be updated annually No corporate exemption or dollar limit Slide 24

25 W-8BEN W-8BEN claims for treaty benefits on most types of accounts payable income except for personal services, claims for foreign exemption from backup withholding and 1099 reporting No corporate exemption or dollar limit Use W-8BEN for royalties, rentals, and all other US sourced income except personal services W-8BEN do not expire. Slide 25

26 States NOT participating in Federal/State Combined Reporting Illinois Kentucky Michigan New York Oklahoma Oregon Pennsylvania Rhode Island Vermont West Virginia Slide 26

27 New Contractor Reporting Similar to new hire reporting (for reporting newly hired employees), but for reporting new contractors instead Effort to catch dead beat parents who owe child support s/contact_map.htm Slide 27

28 New Contractor Reporting (cont.) Alabama Alaska California Connecticut Guam Iowa Maine Massachusetts Minnesota (Required for State and Local Governments-Private companies have the option) Mississippi Nevada New Hampshire New Jersey Ohio Tennessee Slide 28

29 Question and Answer Sean C. Evans DuCharme, McMillen & Associates, Inc. Director Slide 29

Federal Rates and Limits

Federal Rates and Limits Federal s and Limits FICA Social Security (OASDI) Base $118,500 Medicare (HI) Base No Limit Social Security (OASDI) Percentage 6.20% Medicare (HI) Percentage Maximum Employee Social Security (OASDI) Withholding