1099-MISC/1042 REPORTING - PowerPoint Presentation

1099-MISC/1042 REPORTING DOA – Warrant Writer Unit State Accounting Bureau 2017

Objectives 1099 Reporting Deadlines and dates Important 1099-MISC informationGoods vs. servicesVerifying the W-9Reportable vs. non-reportable paymentsReporting classificationMarking voucher for reportingVerifying reporting using query resultsManual adjustments using adjust withholding screenDocumentation 1042 ReportingTypes of W-8sReporting process and deadlinesReportable paymentsImportant AP proceduresU.S. resident vs. foreign supplierChapter 3 vs. Chapter 4 reportingIncome sourcingPenalties1042-S requirements 2

1099-MISC/1042-S Deadlines and Dates January 1 st 2018 1042-S forms for foreign suppliers January 12 th 2018 Interfacing agencies submit 1099 file Last day for agencies to make 1099 adjustments using the adjust withholding function January 30th 20181099-MISC file sent to IRSJanuary 31st 20181099-MISC forms mailed to payeesMarch 1st 2018Adjust withholding screen opened for 2018 changes 3

Important 1099-MISC Information 4

1099-MISC Reportable vs. Non-Reportable Reportable Non-Reportable Services GovernmentsConsultantsTax-exempt entitiesExpert witness testimonyCorporations – unless for medical, legal services, or fish purchasesLegal servicesPurchases of goods Medical services Insurance premiums Non-employee compensation Legal damages – personal physical injury, medical expense reimbursement, property damage claims Rent Storage facilities, rent paid to a real-estate agentTrainingThese are examples – if you have any doubt, mark the payment for withholding 5

Good vs. Service 6

Good vs. Service 7

Good vs. Service The IRS Instructions for Form 1099-MISC provide further explanation of when the full amount is reportable 8

Good vs. Service 9

Verifying a W-9 10

Form W-9 11

Form 1099-MISC 12

Reporting Classifications Box Reportable Non-Reportable 1Land, buildings, offices, conference rooms, equipment, rental assistance payments to property owners, surface royaltiesCapital lease payments for interest reported on 1099-INT, payments for storage2Intellectual property 3 Services performed in course of business: punitive damages, non-physical injury, discrimination/defamation, prizes/awards, honorariums, medical research Personal injury damages, physical sickness, property claims 4 Any amount of money withheld from payment during the year* 6Doctors, dentists, counselors, assisted living workers, clinics, hospitals, nursing homes, medical billingHealth insurance premiums, prescription drugs, medical goods separate from services, scientific research without illness treatment7Bonuses, commissions, professional services, expert witness fees, legal fees to attorneys, purchases of fish for resale, repairsEmployee wages 14 Proceeds paid to attorneys, fees, payment jointly payable to attorney and client Personal injury damages, physical sickness, property claims 13 *The State of Montana rarely, if ever, uses this box

Reporting Classifications 1099 issued of total is greater than $600 14

Reporting Classifications 1099 issued if total is greater than $10 15

Reporting Classifications 1099 issued of total is greater than $600 16

Reporting Classifications 1099 issued if total is greater than $0 17

Reporting Classifications 1099 issued of total is greater than $600 18

Reporting Classifications 1099 issued if total is greater than $600 19

Reporting Classifications 1099 issued of total is greater than $600 20

Box 3 and Box 14 21

Legal Damages and Attorney Reporting At times, more than one 1099 is required 22

Recording Reportable Payments for a Supplier 23

Recording a Reportable Payment in a Voucher 24

Recording a Reportable Payment in a Voucher 25

Partial Reporting 26

Partial Reporting 27

Verifying Reporting Information 28

Verifying Reporting Information Business Unit Voucher ID Name Remit Vndr Vendor SetID Vchr Line Amt Line Descr Withhold Code Amount Payment Reference Payment Date Reconciled Pymnt Select Status Stat/ Actn Bank Account 6101R 00001234 Jim's Tree Trimming 00001212 STATE 500 1 07 500 CHK# 5/5/2016 5/8/2016 PAID CHK 6101R 00001235 Jim's Tree Trimming 00001212 STATE 100 1 07 100 CHK# 5/30/2016 6/2/2016 PAID CHK 6101R 00001236 Jim's Tree Trimming 00001212 STATE 200 1 07 200 CHK# 6/12/2016 6/16/2016 PAID CHK 6101R 00001237 Jim's Tree Trimming 00001212 STATE 75 1 07 75 CHK# 6/30/2016 7/3/2016 PAID CHK 6101R 00001238 Jim's Tree Trimming 00001212 STATE 300 1 03 300 CHK# 7/1/2016 7/5/2016 PAID CHK 6101R 00001239 Jim's Tree Trimming 00001212 STATE 25 1 25 CHK# 7/30/2016 8/5/2016 PAID CHK 6101R 00001240 Jim's Tree Trimming 00001212 STATE 125 1 07 125 CHK# 8/5/2016 8/15/2016 PAID CHK 29

Manually Adjust Supplier Information 30

Manually Adjust Supplier Information 31

Manually Adjust Supplier Information 32

Manually Adjust Supplier Information 33 1. Date range must be entered; click search to view existing information 2. Select “View All” to see all entries and expand window to see all fields including the description 3. Select the “+” on the line you wish to change 4. Do not use the “-” button as historical data must be preserved 5. Mirror the information from the previous line to reverse the original entry Description should contain original reference ID (warrant number), the reason for the change, and your initials 6. Create a third line with the correct information Description should contain original reference ID (warrant number), the reason for the change, and your initials 7. If you wish to only remove an amount, follow the first four steps only

Manually Adjust Supplier Information 34

Manually Adjust Supplier Information 35

Manually Adjust Supplier Information 36

Manually Adjust Supplier Information 37 Reverse the incorrect payment information in the adjust withholding screen If there are multiple lines, you can sum them and make one total entry to back off the entire amount Add comments; the original supplier account should reference the Supplier ID the amount was moved to The corrected adjustment should reference the Supplier ID that the total was originally reported under Add the amount to the correct supplier It’s best to break each of the entries out by payment (individual lines) to preserve the information trail Use your best judgement; this will help you later if an issue arises

Correction/Duplicate Request 38

Correction/Duplicate Request 39 Failure to report 1099-MISC to IRS = $260 penalty per 1099

Review Questions When do all 1099-MISC forms get uploaded to the IRS? 40

Review Questions In the following example, which amounts would be reportable? An interior design company constructs several cubicles for your office area. Do you report the amount of the service/labor, the amount of the materials and parts, or both? 41

Review Questions Your office purchases several photographs to hang around the building. Reportable or not? 42

Review Questions Are the following items reportable or non-reportable? Consultants Medical servicesGovernmentsNon-employee compensationStorage facilitiesInsurance premiums 43

Review Questions Which SABHRS screen is used to make corrections to reportable amounts, business units, and reporting classifications? 44

Review Questions What is the penalty for failure to report a 1099-MISC to the IRS? 45

1042 Reporting-Foreign Suppliers

1042 Reporting - Individuals 47

Form W-8BEN 48

Form 8233 49

1042 Reporting - Entities 50

Form W-8BEN-E 51

Form W-8BEN-E Page 2 52

1042 Reporting - ECI 53

1042 Reporting 54

1042 Reporting Guidelines 55

1042 Reporting – U.S. vs. Non U.S. 56 U.S. Non U.S. Citizens Residents Green Card Substantial Presence Test (SPT) Entities organized under U.S. law U.S. law = 50 states and D.C. Taxed by U.S. on worldwide income Sourcing income for payments to U.S. persons is unnecessary, as all income is subject to U.S. taxation regardless of the income’s sourceChapter 3 Non-resident aliens Individuals who are neither citizens nor residents of the U.S. They may be within or out of the U.S.; can include short-term visitors, individuals who are never in the U.S., individuals who can be in the U.S. for quite some time but will remain non-residents per certain rulesEntities not organized under U.S. law Taxed by U.S. on U.S. source income 30% withholding on U.S. source FDAP (fixed, determinable, annual, periodical) income unless supplier has claimed that income is effectively connected with the conduct of a U.S. trade or business (Form W-8ECI) or 30% withholding on FATCA withholdable payments unless beneficial owner provides required certifications on Form W-8BEN-E, or 30% withholding on U.S. source income unless supplier has claimed treaty benefit Non-U.S. source income paid to non-U.S. persons is not subject to withholding or reporting, but you need to establish that: Collect W-8/8233 Establish income is non-U.S. source income; Invoices, contracts, correspondence, ect .

1042 Reporting – U.S. vs. Non U.S. 57 U.S. Non U.S. U.S.W-9/1099 28% backup w/h Some corporate exemptions Tax-exempt and govt exemptions $600 threshold for most reporting No treaty benefits (some exceptions)Goods purchases exempt form reporting Deadline for Agencies: Jan. 12Non U.S. W-8s/8233/1042-S30% withholding (14% on certain scholarships)No corporate exemption No general tax-exempt or government exemption No minimum dollar threshold for reporting Goods purchases exempt from reporting Deadline for Agencies: Jan. 1

1042 Reporting – Chapters 3 & 4 58 Chapter 3 Chapter 4U.S. source income:Real and personal property rentals Royalties Software licensing fees Gambling winnings Transportation income Non-financial services payments Compensatory scholarship payments Prizes and awards Interest on accounts payable if for the acquisition of goods (e.g., installment payments) or services (e.g., interest on late payments)Ect. U.S. source income Bank deposit interest Premiums for life insurance and annuity contractsAmounts distributed to clients under cash value life insurance products or annuity contracts Investment advisory, custodial, bank, brokerage, or other financial service fees Fees and other payments in connection with any lending transaction including loan guarantees Certain notional principal contracts and derivatives, like fuel contracts and energy hedges Substitute dividends, dividend equivalents, specified notional principal contracts, substitute interest In short: payments arising out of lending and investment activities, and certain insurance premium payments Payments listed are examples, not comprehensive

1042 Reporting – Sourcing Rules 59 Summary of Sourcing Rules Person al Services Where service was performed; if both in U.S. and outside, must prorate on time basis; fee x # of days in the U.S./ total # of days Dividends Where entity is incorporated Interest Tax residence of payer Rentals Where property is located Royalties – patents, copyrights Where property is usedRoyalties – natural resources Where property is locatedPrizes & Awards (that are not compensation) Residence of the payer

1042 Reporting – Sourcing Rules 60 Summary of Sourcing Rules Transportation Truck and rail: If start and or stop in U.S. may need to prorate based on mileage logs or other means Software License fees sourced where the server or hard drive is located in which the software is mounted. Real question: whether software is leased for rentals, or licensed for royalties, or purchased Subscription fees to electronically maintained information, databases, etc. No direct authority on point, most think U.S. source if date are accessed through a U.S. server, whether applying the royalty sourcing rule where the property is used or rental sourcing rule where the property is located

1042 Reporting 61

1042 Reporting Process 62

Form 1042-S Required Fields 63 Penalty risk $100 per form 1042-S if you file after August 1 st or you do not file correct Forms 1042-S

1042 Reporting – Agency Responsibility 64

WWU Agency Support 65

Foreign Payment Process 66

Review Questions Which IRS form is used by an individual making a treaty claim on U.S. source services income? 67

Review Questions When can a foreign payment be exempt from 30% withholding (3 instances)? 68

Review Questions When is it okay to pay a foreign supplier with a ProCard ?69

Review Questions What is the minimum dollar amount for 1042 reporting? 70

Review Questions Is rental income sourced by where the renter lives, the owner of the rental lives, or the property location? 71

Review Questions What is the penalty risk for 1042 reporting per form? 72

Review Questions Who has the responsibility of verifying and procuring correct and complete W-8 forms? 73

Thank you for attending! Email additional questions to warrantwriter@mt.gov or call Jamie Wattnem at 406-444-5688