Download as PDF, PPTX
Uploaded byDebera Salam, CPP
State information reporting and withholding
This presentation discusses the complexities of state information reporting and withholding, emphasizing the importance of accurate reporting to close the tax gap. It covers federal requirements, penalties for non-compliance, and variations among states, along with the Combined Federal-State (CFS) filing option. The document serves as an educational resource for understanding obligations and best practices in tax reporting.
More Related Content
Similar to State information reporting and withholding
State information reporting and withholding
- 1. State information reporting andwithholding The increasingly complex and fluid state reporting environment August 28, 2018 Watch the replay
- 2. Page 2 Stateinformation reporting and withholding ► This presentation is provided solely for the purpose of enhancing knowledge on tax matters. It does not provide tax advice to any taxpayer because it does not take into account any specific taxpayer’s facts and circumstances. ► These slides are for educational purposes only and are not intended, and should not be relied upon, as accounting advice. ► The views expressed by the presenters are not necessarily those of Ernst & Young LLP. ► This presentation is © 2018 Ernst & Young LLP. All Rights Reserved. EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms, of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. Ernst & Young LLP is a client-serving member firm of Ernst & Young Global Limited operating in the US. Disclaimer
- 3. Page 3 Stateinformation reporting and withholding Stephanie Faiad Ernst & Young LLP Employment Tax State Information Reporting and Withholding Services Stephanie.Faiad@ey.com Ray Grove Ernst & Young LLP Indirect Tax State Information Reporting and Withholding Services Raymond.Grove@ey.com State information and reporting: The increasingly complex and fluid state reporting environment Stephanie Swann Ernst & Young LLP State Information Reporting and Withholding Services Stephanie.Swann@ey.com Moderator Speakers Meet our speakers
- 4. Page 4 Stateinformation reporting and withholding Why information reporting? Withholding and reporting life cycle State information reporting and withholding considerations Penalties and controversy Gap analysis and leading practices Contact us Agenda
- 5. Page 5 Stateinformation reporting and withholding Return to table of contents Why information reporting?
- 6. Page 6 Stateinformation reporting and withholding ► Help individuals to accurately report their income on federal, state and local income tax returns ► Record income tax withholding for the year if applicable ► Provide proof of income, for instance, for credit applications ► Verify non-wage income reported on tax returns (e.g., interest, dividends, royalties, cancellation of debit) ► Verify income tax deductions claimed (e.g., mortgage interest, student loan interest, certain bond income, alimony) ► Confirm income tax withholding reported ► Enforce penalties in cases of non-filing, underpayment or underreporting ► Close the tax gap Individuals Information statements Government Information returns Return to table of contents Why information reporting?
- 7. Page 7 Stateinformation reporting and withholding 17% Non-filing and underpayment 83% Source of the tax gap Closing the tax gap can help governments raise revenue without increasing taxes What is the tax gap? * ► The tax gap is measured as the difference between total taxes owed and total taxes paid ► Can represent up to 20% of the total tax liability ► The gross federal tax gap for tax years 2008 to 2010 was estimated at $458 billion Information reporting narrows the gap ► Where there is no information reporting requirement, approximately 63% of income goes unreported ► Where information reporting is required, about 7% of income from easily identified sources goes unreported (e.g., interest, dividends and pensions) ► If both information reporting and withholding is required, the rate of unreported income drops to approximately 1% * Source: Internal Revenue Service, Federal Tax Compliance Research: Tax Gap Estimates for Tax Years 2008-2010, April 2016 Return to table of contents Closing the tax gap
- 8. Page 8 Stateinformation reporting and withholding Payees/Taxpayers ► Due to recipient on January 31 ► Electronic statements may be provided if certain requirements are met ► Generally no extension of time available ► January 31 filing due date applies to Form 1099-MISC if nonemployee compensation reported in box 7 ► Due date for other returns depends on type of information return, most due March 31 if filing electronically ► Electronic filing is required if 250 or more of each type of information statement ► Publication 1220 provides the required formatting ► Files must be submitted using IRS FIRE system IRS Return to table of contents Form 1099 federal reporting requirements
- 9. Page 9 Stateinformation reporting and withholding Requesting filing extensions Final regulations (T.D. 9838) ► A request for extension of the time to file federal information returns with the IRS is obtained by filing Form 8809 ► Generally, two 30-day extensions can be requested ► The first 30-day extension is automatic ► The second 30-day extension is approved by the IRS for extraordinary circumstances (e.g., fire or other disaster) ► The automatic 30-day extension is not available for Form W-2 (except for Form W-2G) and Forms 1099-MISC where nonemployee compensation is reported in Box 7 ► In time for the 2019 filing season, the IRS intends to add checkboxes to Form 8809 to identify additional circumstances under which a non-automatic extension will be granted ► Abatement of penalty may be available to filers who fail to file timely but do not receive a filing extension time to file Return to table of contents
- 10. Page 10 Stateinformation reporting and withholding Polling question #1 How confident are you in your compliance practices around 1099 reporting? A. Very B. Somewhat C. Unsure D. I know I have gaps E. Does not apply (EY, faculty, other) Return to table of contents
- 11. Page 11 Stateinformation reporting and withholding Return to table of contents State information reporting and withholding considerations
- 12. Page 12 Stateinformation reporting and withholding Filing due date Reporting formats Payee copy due date Reporting methods/forms Penalties State variations Payment threshold that triggers reporting Employer filing threshold Withholding requirements Return to table of contents State Form 1099 reporting variations
- 13. Page 13 Stateinformation reporting and withholding Created by IRS to simplify reporting across federal and state jurisdictions. IRS will forward original information return data to states for correctly formatted records Must apply for the program and submit test files Limitations of CFS: Not all states participate. If you have reporting requirements in states that do not participate, you must always report directly Some states that do participate in CFS still require direct reporting in certain circumstances Not all forms are part of the CFS program. If a state requires a non-CFS form, you will need to report directly for those forms Some states have specific CFS requirements Perform analysis to determine if CFS is meeting all state information reporting obligations Forms included Form 1099-B Form 1099-DIV Form 1099-G Form 1099-INT Form 1099-K Form 1099-MISC Form 1099-OID Form 1099-PATR Form 1099-R Form 5498 Participating states Tax year 2017 Alabama Massachusetts Arizona Michigan Arkansas Minnesota California Mississippi Colorado Missouri Connecticut Montana Delaware Nebraska Georgia New Jersey Hawaii New Mexico Idaho North Carolina Indiana North Dakota Kansas Ohio Maine Oklahoma Maryland South Carolina Wisconsin Note that the IRS CFS option does not satisfy all of the reporting and withholding requirements. Return to table of contents Combined federal state (CFS) filing option
- 14. Page 14 Stateinformation reporting and withholding No direct reporting requirement Direct reporting requirements met with CFS Some or all of direct reporting requirements are not met with CFS FL ME VT NH NY PA WV NC SC GA IL OH IN MIWI KY TN ALMS AR LATX OK MOKS IA MN ND SD NE NMAZ CO UT WY MT WA OR ID NV CA VA CT RI DE MD NJ MA WA DC AK HI State information reporting Direct reporting requirements overview Return to table of contents
- 15. Page 15 Stateinformation reporting and withholding All of these must be considered in determining if and when withholding is required in connection with the information reporting requirements Are specific withholding forms required? What rate of withholding is required? Is voluntary withholding permitted? Is backup withholding required? What payments are subject to withholding? If requested, is voluntary withholding mandatory? When is withholding remitted? What reconciliation returns/reports are required? Are reconciliation returns submitted with information returns? What penalties apply for failure to withhold, or to withhold correctly? Return to table of contents State information withholding considerations
- 16. Page 16 Stateinformation reporting and withholding Polling question #2 Does your organization perform direct state withholding and reporting today for Form 1099 payments? A. Yes, we fully comply and have the appropriate tax technical knowledge and operational capacity to do this work B. No, we are not compliant and believe we may have obligations; however, lack the tools and knowledge C. Unsure D. No, I wasn’t aware of these obligations E. Does not apply (EY, faculty, other) Return to table of contents
- 17. Page 17 Stateinformation reporting and withholding Alabama Alabama Act 2017-294 installs a requirement for payment settlement entities (PSEs) to file Form 1099-K for all payees with an Alabama address. Starting in tax year 2018, organizations are required to file Forms 1099 and W-2G with the Iowa Department of Revenue. Previously, filing of these forms was not required. Iowa Return to table of contents Starting in tax year 2017, filing of Form 1042-S is required. North Carolina State information reporting developments
- 18. Page 18 Stateinformation reporting and withholding State information reporting developments, cont’d Act 43 of 2017 created new withholding obligations for certain payers of Pennsylvania-sourced income and lessees of Pennsylvania real estates to non-residents. Starting January 1, 2018, anyone making the following payments must withhold at the statutory rate of 3.07%: Payments of PA-source non-employee compensation or business income to a non-resident individual or disregarded entity that has a non-resident member and is reported on a Form 1099-MISC A lessee of PA real estate who makes a lease payment in the course of trade or business to a non-resident lessor Pennsylvania Return to table of contents Vermont Vermont Act 73 of 2017 requires third party settlement organizations (TPSOs) to report payments that equal or exceed $600 per person. This change dramatically lowers the filing threshold, which previously followed the federal threshold of $20,000 and 200 or more transactions per person.
- 19. Page 19 Stateinformation reporting and withholding State nexus considerations ► Many organizations are surprised by what actions may constitute nexus in various states ► Some factual questions to consider: ► Do we have a location in the state? ► Do we own any property in the state? ► Do we sell products or services for use in the state? ► Do we provide services or have contracts with a government entity? ► Do we have any independent contractors or other agents operating within the state? Return to table of contents
- 20. Page 20 Stateinformation reporting and withholding South Dakota v. Wayfair, Inc. Nexus impact Return to table of contents
- 21. Page 21 Stateinformation reporting and withholding Polling question #3 How do you perform your 1099 reporting today? A. We outsource it to a firm B. We perform it in-house with home-grown tools C. We license a technology and have a team that performs the work D. Unsure E. Does not apply (EY, faculty, other) Return to table of contents
- 22. Page 22 Stateinformation reporting and withholding Return to table of contents Withholding and reporting life cycle
- 23. Page 23 Stateinformation reporting and withholding Information reporting/withholding Life cycle Taxpayer identification number (TIN) solicitation (documentation) Obtain Form W-9 for US non-wage income or Form W-4P for pension and annuity payments and respond to IRS CP2100 and 972CG notices Reconciliation Balance withholding to governmental tax payments; balance accounts payable records to total reported on information returns/statements Penalty response Penalties apply for failure to furnish accurate and timely information statements to taxpayers and/or information returns to the governmental agencies Reporting For federal purposes, reporting includes the annual Form 945 for reporting income tax withholding, providing information statements to taxpayers (e.g., Form 1099-MISC) and filing information returns (e.g., Form 1099-MISC, copy A) with the IRS Witholding and remitting (regular or backup tax) Regular withholding applies to a lmited range of payments (e.g., gambling income), otherwise, a flat 24% backup tax rate applies (28% prior to 2018) under certain conditions Onboarding Tax collection and remittance Governmental transactions Return to table of contents
- 24. Page 24 Stateinformation reporting and withholding B Notice management Process flow B Notice management Return to table of contents
- 25. Page 25 Stateinformation reporting and withholding Return to table of contents Penalties and controversy
- 26. Page 26 Stateinformation reporting and withholding §6721 Failure to timely file an accurate information return with IRS (for returns filed in 2018) Filed/corrected Maximum On or after On or before Penalty Maximum small business 1/1 3/31 $0 N/A N/A 4/1 4/30 $50 $545,500 $191,000 5/1 8/1 $100 $1,637,500 $545,500 8/2 $270 $3,275,500 $1,091,500 Intentional disregard $540 No limit No limit §6722 Failure to timely furnish an accurate employee statement (for returns filed in 2018) Furnished/corrected Maximum On or after On or before Penalty Maximum small business 1/1 1/31 $0 N/A N/A 2/1 3/2 $50 $545,500 $191,000 3/3 8/1 $100 $1,637,500 $545,500 8/2 $270 $3,275,500 $1,091,500 Intentional disregard $540 No limit No limit *See Rev. Proc. 2018-18 IRB 2018-10 Return to table of contents Federal information reporting penalties Penalties double for errors on both payee copy and return filed with IRS
- 27. Page 27 Stateinformation reporting and withholding ► States typically will apply a similar standard to the federal “reasonable cause” for abatement purposes ► Examples: Variation in definition and application of reasonable cause ► Minnesota: A reasonable cause results from circumstances beyond your control ► California: Failure to file occurred despite exercise of ordinary business care and prudence ► Connecticut: Determined on an individual basis based on all facts and circumstances ► Examples: Difference in per form penalty amounts by state ► Minnesota: $50 per form ► California: Same as federal ► Connecticut: $5 per form State controversy Penalty abatement and reasonable cause Return to table of contents
- 28. Page 28 Stateinformation reporting and withholding Information reporting penalties Failure to report and failure to respond ► Process ► Notice 972CG proposes an IRC §6721(a) penalty for the information returns that were filed late, filed on incorrect media, or filed with missing or incorrect TIN, or a combination ► CP15 or CP215 – 45 days to respond to Notice 972CG. If no response, full assessment and balance due notice will be issued ► Penalty abatement ► Notice 972CG will include a list of the information returns filed with missing or incorrect name/TIN combinations. Penalty can be abated if “reasonable cause” is shown ► If “reasonable cause” is not established, a balance due notice (CP15 or CP215) including appeal rights will be sent Return to table of contents
- 29. Page 29 Stateinformation reporting and withholding + = Significant mitigating factors or events beyond the filer’s control Acted in a responsible manner Reasonable cause Return to table of contents Federal and state penalty abatement is generally based on this rule. State rules may vary somewhat. Penalty abatement and reasonable cause
- 30. Page 30 Stateinformation reporting and withholding Polling question #4 Would you like someone to reach out to you to talk more about your information reporting and withholding needs and potential areas of improvement? A. Yes B. No C. Does not apply (EY, faculty, other) Return to table of contents
- 31. Page 31 Stateinformation reporting and withholding Return to table of contents Gap analysis and leading practices
- 32. Page 32 Stateinformation reporting and withholding Requirements review and gap analysis Now that I know, what do I do? Don‘t forget the basics Focus on obligations, people, process and technology Be prepared to pursue a multitude of issues Return to table of contents
- 33. Page 33 Stateinformation reporting and withholding Withholding Reporting What tools and people are available to do the work? Are you able to track where services are performed? How do you track tax payment schedules? What tools and people are available to do the work? Do you know your obligations and how to track them? Do you have the resources to close any gaps? Process improvement Risk assessment Ongoing compliance Return to table of contents Technology and operations considerations
- 34. Page 34 Stateinformation reporting and withholding Leading practice approach to information reporting and withholding Taxpayer identification number solicitation and matching B Notice management and solicitations Recipient communication support IRS/state controversy; penalty abatements Form 1099 reporting Gap analysis recommendations and remediation People 2 4 3 56 7 Technical requirements review and gap analysis 1 Process Technology Information reporting and withholding Federal Combined federal and state Direct state, local, and municipal Return to table of contents
- 35. Page 35 Stateinformation reporting and withholding Polling question #5 Will you require an RCH certificate for today’s webcast? Those with Certified Payroll Professionals (CPP) and Fundamental Payroll Certification (FPC) professional designations check “yes” to this question. All others check “no.” A. Yes B. No Return to table of contents
- 36. Page 36 Stateinformation reporting and withholding One-minute recap Return to table of contents
- 37. Page 37 Multistatepayroll tax compliance Download our other special reports Federal and state Form W- 4 compliance for 2018 An employer’s guide to the Tax Cuts and Jobs Act US employment tax rates and limits for 2018 Courtesy withholding Crossing US borders Paid family leave States move forward with public retirement plans Guide to Unemployment insurance in 2017 Gross-ups Transportation fringe benefits SurveyAgenda Sourcing News Policy ResourcesReciprocity
- 38. Ernst & YoungLLP Putting inform into Information Stay connected Payroll year-end EY Employment Tax Payroll Perspectives from EY EY payroll year-end checklist EY get on board EY Unemployment insurance FactFinder Return to table of contents