PowerPoint on Forms 1099 and W-9


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PowerPoint on Forms 1099 and W-9

  1. 1. Vendor User Group Meeting December 4, 2007
  2. 2. Presenters <ul><li>OMB/State Procurement Office/Vendor Registry: </li></ul><ul><li>Renee Walery </li></ul><ul><ul><li>(701) 328-1729 </li></ul></ul><ul><li>Bev Haman </li></ul><ul><ul><li>(701) 328-2741 </li></ul></ul><ul><li>www.nd.gov/spo/connectnd/ </li></ul>
  3. 3. 1099 Reporting Information Disclaimer <ul><li>To ensure compliance with requirements imposed by the IRS, any tax advice contained in this communication (including any hyperlinks) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. </li></ul><ul><li>The web sites mentioned in this document may contain links to other locations. These links should be considered referrals only, and should not be taken as an endorsement. </li></ul>
  4. 4. What We Will Discuss <ul><li>Collection of Forms W-9 </li></ul><ul><li>Payments to Employees </li></ul><ul><li>1099 Issues </li></ul><ul><li>Foreign Vendors and Forms W-8 </li></ul>
  5. 5. Why Collect W-9 Forms? <ul><li>OMB Fiscal Policy 110 took effect August 1, 2007. </li></ul><ul><li>Background – Agency Instructions </li></ul><ul><li>Who does this affect? </li></ul>
  6. 6. Notes From IOMA Conferences <ul><li>RULE: If the agency (or State) does not have the payee’s TIN before or at the time the reportable payment is made, there must be 28% backup withholding. </li></ul><ul><li>  </li></ul><ul><li>The IRS can charge the State a fine plus the 28% backup withholding amount if we cannot prove a W-9 is on file. </li></ul><ul><li>  </li></ul><ul><li>“ Presume a vendor is 1099 reportable unless proven in writing that it is otherwise.” </li></ul>
  7. 7. Which W-9 Form to Use? <ul><li>Individual, Non-Business Application </li></ul><ul><ul><li>SFN 54309 </li></ul></ul><ul><li>Domestic (U.S.) Business Application </li></ul><ul><ul><li>SFN 53656 </li></ul></ul><ul><li>IRS Form W-9 </li></ul><ul><li>Substitute W-9 incorporated into agency forms </li></ul>
  8. 8. Sole Proprietorships <ul><li>DBA = John Doe doing business as Dakota Stumpjumpers </li></ul><ul><li>DBA’s can cause mismatches with 1099 reporting - $100 per 1099 </li></ul><ul><li>Please compare W-9 forms with individuals’ names to the business names they use on invoices. </li></ul>
  9. 9. Example
  10. 10. Procedures for Collecting W-9 Forms <ul><li>Refer to Agency Instructions handout </li></ul><ul><li>Fax cover sheet </li></ul><ul><li>Continue to send email request to [email_address] </li></ul><ul><li>One-time vendors </li></ul><ul><li>Vendor Inquiry role </li></ul>
  11. 11. Sample Email Request <ul><li>When requesting new vendors, please use format similar to this: </li></ul><ul><li>From: (voucher enterer) </li></ul><ul><li>To: [email_address] </li></ul><ul><li>Subject: New Vendors </li></ul><ul><li>I just faxed over forms for: </li></ul><ul><li>Jane Doe </li></ul><ul><li>Bismarck Upholstery </li></ul><ul><li>Institute of Paper Shufflers </li></ul>
  12. 12. What Makes a W-9 Complete? <ul><li>Name – clearly legible </li></ul><ul><li>Taxpayer ID Number (TIN) – can be a SSN or EIN </li></ul><ul><li>Address – complete </li></ul><ul><li>Organization type </li></ul><ul><li>Signature </li></ul><ul><ul><li>Incomplete or incorrect bank account information will not be returned – it just won’t be entered. </li></ul></ul>
  13. 13. QUESTIONS?
  14. 14. Payments to Employees <ul><li>Who is a state employee? </li></ul><ul><li>See web page “Using Vendors / Payees in PeopleSoft”: </li></ul><ul><ul><li>http://www.nd.gov/spo/connectnd/manual/index-2.html </li></ul></ul><ul><li>Payments for reportable services </li></ul><ul><ul><li>Employees vs Independent Contractors </li></ul></ul>
  15. 15. Problem Areas <ul><li>Non-employee travel </li></ul><ul><li>Stipends to employees </li></ul><ul><li>Honoraria </li></ul><ul><ul><li>See Fiscal Policy 208 </li></ul></ul><ul><li>Professionals Not Classified </li></ul>
  16. 16. Educational Benefits <ul><li>Educational assistance for employees: </li></ul><ul><ul><li>Excluded from taxable income up to $5,250 each year. </li></ul></ul><ul><ul><li>Amounts up to $5,250 are paid in AP using account #611030 . </li></ul></ul><ul><ul><li>Payments over $5,250 are paid in AP using account #611035 . </li></ul></ul><ul><ul><li>Agencies need to track these amounts themselves. </li></ul></ul>
  17. 17. QUESTIONS?
  18. 18. 1099 ISSUES
  19. 19. What We’ve Learned in 2007 <ul><li>Marianne Couch, Cokala Tax Information Reporting Solutions </li></ul><ul><li>Presentations through IOMA </li></ul>
  20. 20. Limited Liability Companies <ul><li>“ Generally, taxed as individuals/sole proprietors or partnerships, not corporations” </li></ul><ul><li>Assume an LLC is taxable unless they prove otherwise. </li></ul><ul><li>Single Membership LLC </li></ul><ul><ul><li>Can be a corporation or a disregarded entity (treat as a sole proprietorship) </li></ul></ul>
  21. 21. 1099 Information Web Pages <ul><li>Developed in 2007 - http://www.nd.gov/spo/connectnd/1099-information/1099-info-index.html </li></ul><ul><li>Updated Maintenance Manual </li></ul><ul><li>Guidelines for Agencies </li></ul><ul><li>Reference Info </li></ul><ul><li>Independent Contractors </li></ul>
  22. 22. Withholding Classes <ul><li>See Explanation of withholding classes at </li></ul><ul><ul><li>http://www.nd.gov/spo/connectnd/1099-information/explanation-of-diff.pdf </li></ul></ul><ul><li>Box 1 – Rents and leases </li></ul><ul><li>Box 2 – Royalties </li></ul><ul><ul><li>Includes software licenses </li></ul></ul>
  23. 23. Box 3 – Other Income <ul><li>Deceased employee’s wages paid to estate or beneficiary </li></ul><ul><li>Informant fees, such as Crime Stoppers are reportable </li></ul><ul><li>Prizes and awards </li></ul><ul><li>Legal damages </li></ul>
  24. 24. More Withholding Classes <ul><li>Box 4 – Backup withholding </li></ul><ul><li>Box 6 – Medical and healthcare services </li></ul><ul><ul><li>“ Think broadly.” </li></ul></ul><ul><ul><li>Check out special medical issues </li></ul></ul><ul><li>Box 7 – Nonemployee compensation </li></ul><ul><ul><li>“ Rule of Thumb: Employees should not be getting 1099’s.” </li></ul></ul>
  25. 25. Class 14 – Gross Proceeds Paid to Attorneys <ul><li>Rule of thumb: </li></ul><ul><ul><li>If attorney/law firm performed services for your organization , report these payments in Box 7. </li></ul></ul><ul><ul><li>If attorney/law firm performed services for someone else (third party) , report these payments in Box 14. </li></ul></ul>
  26. 26. Grants and Scholarships <ul><li>According to Marianne Couch: </li></ul><ul><ul><li>Loan Forgiveness Grants – loans are forgiven if specific requirement is done. </li></ul></ul><ul><ul><li>The free money to the individual is reportable, but how? </li></ul></ul><ul><ul><ul><li>Deciding factor: who benefited from the services or specific requirement? </li></ul></ul></ul><ul><ul><li>The term “scholarship” should not be used if the individual is not an enrolled college student. </li></ul></ul>
  27. 27. Example 1 <ul><li>Nursing loans become state grants if nursing students stay in ND to work. </li></ul><ul><ul><li>In this example, the population of ND benefits from the nursing students, not a specific organization. Report the money in Box 3 on a 1099-MISC. </li></ul></ul>
  28. 28. Example 2 <ul><li>A state agency gives grant or scholarship money if an individual performs work for them as a nonemployee . </li></ul><ul><ul><li>The state agency benefits from the services performed, but the individual is not hired on as an employee. Report the scholarship/honorarium/stipend on Box 7 for nonemployee compensation . </li></ul></ul>
  29. 29. Example 3 <ul><li>A state agency gives scholarships to summer workers. If the worker comes back to that agency for employment, the money is free. If they don’t, the scholarship becomes a loan that is to be paid back. </li></ul><ul><ul><li>If the agency requires that their summer scholarship recipients come back as employees, then the grant or scholarship is reportable on a W-2. Since this money is often given out before hiring, it should be reported as back wages or an advance . </li></ul></ul>
  30. 30. Misc. Topics from IOMA <ul><li>Combination payments: repair labor plus parts – report the whole amount. </li></ul><ul><li>P-cards: services are reportable. Therefore, the State does not authorize the use of p-cards for paying services, including printing . </li></ul>
  31. 31. Reimbursing Travel Expenses <ul><li>Independent contractor expenses – see IRS Publication 463. </li></ul><ul><li>“ You do not have to include expenses on a 1099 if travel is required to do the job.” </li></ul><ul><li>However, most TRUE independent contractors include their expenses in their contract amounts. </li></ul>
  32. 32. Traveling Expenses Rule of Thumb <ul><li>Were the expenses incurred for your organization’s benefit, or the Independent Contractor’s? </li></ul><ul><ul><li>If your agency hires a speaker/consultant and pays the air fare and motel rooms, it is not reportable. </li></ul></ul><ul><ul><li>If you hire a company to do a job and it is their choice of how to travel there and how to perform the job, then report any reimbursed expenses as part of their contract. </li></ul></ul>
  33. 33. QUESTIONS?
  35. 35. Why Are Forms W-8 Needed? <ul><li>IRS clamping down on tracking foreign payees </li></ul><ul><li>“ Know your customer” </li></ul><ul><li>30% backup withholding required if no W-8 </li></ul><ul><li>No corporate exemptions for foreign corporations </li></ul>
  36. 36. Which W-8 Form to Use? <ul><li>Most will complete the W-8BEN. </li></ul><ul><li>The W-8ECI is required when the business headquarters are foreign, but they have a plant, store, etc. physically located in the U.S. The business must have a U.S. taxpayer ID to complete this form. </li></ul>
  37. 37. Example of W-8ECI <ul><li>Schulte USA, Inc. </li></ul><ul><li>Office in Florida </li></ul><ul><li>Headquarters and payments in Saskatchewan </li></ul>
  38. 38. More Forms <ul><li>Use the W-8EXP for foreign governments, foreign banks, and foreign tax-exempt organizations. </li></ul><ul><li>Use the W-8IMY for foreign intermediaries, flow-through entities, etc. collecting money for a third party. </li></ul>
  39. 39. Wrap Up on Foreign Vendors <ul><li>Ask them if they have a presence in the U.S. </li></ul><ul><li>Ask them if they have a U.S. taxpayer ID. </li></ul><ul><li>Proper W-8 form must be completed before payment is made. </li></ul>
  40. 40. Remember: <ul><li>It does not matter what the dollar amount of the payment is, or whether the payment is for goods or a reimbursement; all foreign vendors need to prove who they are to receive state funds. </li></ul>
  41. 41. QUESTIONS?