CHAPTER 6 - 1099 INFORMATION RETURNS
Information Returns - Form 1099
1099's are information returns which report payments made by a taxpayer engaged in a trade or business (a corporation, partnership, individual, etc.) to another taxpayer. Copies of these statements are sent to the IRS and the recipient of the payments. State filing requirements vary.
Telephone Numbers Required
Copy B (recipient copy) of the following forms must include a telephone number providing direct access to an individual who can answer questions about the statement:
Form W-2G Statement for Certain Gambling Winnings;
Form 1098 Mortgage Interest Statement;
Form 1098-E Student Loan Interest Statement;
Form 1098-T Tuition Statement;
Form 1099-A Acquisition or Abandonment of Secured Property;
Form 1099-B Proceeds from Broker and Barter Exchange Transactions;
Form 1099-CAP Changes in Corporate Control and Capital Structure;
Form 1099-DIV Dividends and Distributions;
Form 1099-G Certain Government Payments;
Form 1099-H Health Coverage Tax Credit (HCTC) Advance Payments;
Form 1099-INT Interest Income;
Form 1099-LTC Long Term Care and Accelerated Death Benefits;
Form 1099-MISC Miscellaneous Income;
Form 1099-OID Original Issue Discount;
Form 1099-PATR Taxable Distributions Received from Cooperatives;
Form 1099-Q Payments from Qualified Education Programs (under Sections 529 & 530); and Form 1099-S Proceeds from Real Estate Transactions.
Voluntary Withholding
States must allow unemployment compensation recipients to elect to have Federal income tax withheld at a 10% rate.
A payee who receives any of the following government payments may elect to have federal income tax withheld (Form W-4V) at a rate of 7%, 10%, 15% or 25%.
unemployment compensation (only 10% rate applies);
social security benefits;
social security equivalent Tier 1 railroad retirement benefits;
certain crop disaster payments; or
Commodity Credit Corporation loans.
Forms can be obtained at your local Internal Revenue Service office or from our offices.
See the Guide to Information Returns at the end of this chapter for the filing requirements for each
Payments to Attorneys
All payments of $600 or more made by a trade or business to an attorney must be reported on Form 1099-MISC and filed with the Internal Revenue Service. This reporting requirement applies to any payment to an attorney in connection with legal services and lawsuit settlements unless the payment is for wages reportable on Form W-2. All payments of income to an attorney must be reported, whether or not the attorney is the exclusive payee.
There is NO EXCEPTION for attorneys who are incorporated.
If payments are made in the course of a trade or business to an attorney in connection with legal services and the attorney’s fee is not reportable by the payer, the total amount paid to the attorney (gross proceeds) must be reported in box 14 on Form 1099-MISC.
Payers need to obtain the attorney’s Tax Identification Number (TIN). Payments made to a business entity require the business’ TIN. Payments made directly to an individual require the individual’s social security number.
Miscellaneous Income (Form 1099-MISC)
This form must be filed for each person, other than corporations (except for attorneys), to whom you have paid $600 or more during the calendar year in the course of your trade or business for:
all types of rents, including real estate, land, machinery, trucking, and entertainment facility rents (rent payments to real estate agents are not required to be reported);
payments (including both cash and non-cash, such as parts and materials) for services by nonemployees; for example, fees paid to unincorporated accountants, lawyers, veterinarians, plumbers, roofers, subcontractors, commissions paid to independent sales representatives and excess golden parachute payments;
director's fees of $600 or more (see Payments to Directors chapter for details);
prizes and awards given to employees which are not for services, or prizes and awards given to nonemployees for services;
taxable fringe benefits for nonemployees;
commissions to nonemployee salespersons subject to repayment, but not repaid during calendar year;
travel reimbursement paid to nonemployees for which they did not account to the payer;
payments of capital credits by electric and telephone cooperatives (see Taxation of Capital Credits chapter);
royalty payments of $10 or more;
broker payments in lieu of dividends or tax-exempt interest;
sales of $5,000 or more of consumer products on a buy-sell, deposit-commission, or other commission basis for resale anywhere other than in a permanent retail establishment;
utility rebates and refunds of $600 or more (see Utility Rebates later in this chapter);
payments to attorneys; or
medical or healthcare payments, including payments to veterinarians except to tax-exempt providers.
Form 1099-MISC must also be filed for each person from whom you have withheld any federal income tax under the backup withholding rules regardless of the amount of the payment.
Utility Rebates (Form 1099-MISC)
Form 1099-MISC is used to report utility rebates and refunds of $600 or more. However, no requirement to report exists if the rebate or refund is not includable in the customer’s gross income.
Example: In Revenue Ruling 91-36, the IRS concludes that rate reductions and non-refundable credits provided by electric utility companies to customers that participate in energy conservation programs are not includable in the customer’s gross income. No Form 1099 would be issued in this situation, regardless of the amount of reduction or credit.
Form 1099-MISC should be issued for refunds or rebates of $600 or more unless it can be positively determined that the payments are not taxable to the recipient.
Rent Payments (Form 1099-MISC)
Form 1099-MISC must be filed for rent payments which total $600 or more for the calendar year. For example, Form 1099-MISC should be issued for payments of $600 or more to an LLC, partnership, or individual for the use of transport or transmission facilities. Other reportable types of payments include rental of buildings, towers and poles.
Interest Income (Form 1099-INT)
Form 1099-INT must be filed for interest payments of $600 or more ($10 or more for financial institutions) made in the course of your trade or business or if you withheld any federal income tax under the backup withholding rules regardless of the amount of the payment.
Tax-exempt interest must be reported in Box 8.
Dividend Income (Form 1099-DIV)
Form 1099-DIV must be filed for dividend payments and other stock distributions of $10 or more. Also include payments of $600 or more in cash or noncash payments made as part of a liquidation. Generally, S Corporations are not required to issue 1099-DIV for distributions. If any recipient is subject to the backup withholding rules, a 1099-DIV should be issued regardless of the amount.
Retirement Distribution (Form 1099-R)
Form 1099-R must be filed for each person to whom you have made any distribution from pensions, annuities, profit-sharing and retirement plans, IRAs and insurance contracts. (See the last page of this chapter for additional reportable items).
Mortgage Interest Statement (Form 1098)
Points paid on mortgages are to be reported in Box 2 of Form 1098. The points must meet the following qualifications:
points are clearly designated;
points are interest for the use of money;
points are common practice in the area;
points are paid directly by borrower; and
points are for the purchase of principal residence.
The following points are not reportable on Form 1098:
points paid for loans to improve a principal residence;
points paid for loans to purchase or improve a second home, vacation, investment, or trade or business property;
points paid for refinancing, home equity, or line of credit;
points paid in excess of the amount usually charged in the area; and
points paid to acquire a principal residence to the extent the loan exceeds $1 million.
Payments For Which 1099's Are Not Required
The following are examples of payments that generally do not have to be reported on 1099's:
payments to corporations (except for legal services and for-profit medical/healthcare providers);
payments of income required to be reported on other federal forms, such as W-2's and K-1's;
payments of common bills for items such as: merchandise, telegrams, telephone service by end users, freight or similar charges;
payments which are advances, reimbursements or charges for traveling and other business expenses of an employee to the extent that the employee accounts to the employer for such expenses;
less than $600 of interest paid to customers on security deposits; and
payments of less than $600 of patronage capital to patrons of electric and telephone cooperatives.
There is no 1099 reporting requirement for electric and telephone cooperatives when they allocate patronage capital.
FILING REQUIREMENTS Federal Filing Information
Paper Forms 1099 must be accompanied by Form 1096 for each type of Form 1099. Form 1096 is not used to transmit electronically or magnetically.
The due dates are:
January 31, 2017 - Recipient's copy must be postmarked on or before this date.
February 15, 2017 - Recipient copy of 1099-B and 1099-S and 1099-MISC if substitute payments are reported in Box 8 or gross proceeds paid to an attorney are reported in Box 14.
January 31, 2017 – IRS’s copy of 1099-MISC when reporting nonemployee compensation payments in box 7. Otherwise, file by February 28, 2017, if you file on paper, or by March 31, 2017 if you file electronically.
Extension Request - A payer may request an automatic 30-day extension of time to file by submitting Form 8809. One additional 30-day extension may be requested. A payer may also request, by letter, one 30-day extension of time to provide statements to recipients.
State Filing Requirements
Minnesota - Only Forms 1099 with Minnesota withholding should be filed with the Minnesota Department of Revenue. The forms must be postmarked by February 28, 2017.
Idaho - State copies of Forms 1099 should be filed with the Idaho State Tax Commission.
Forms are due by the last day of February. If withholding is due, you must also file Form 967.
If no withholding is due, include Idaho Form 96 or a copy of Federal Form 1096 with your information returns. Forms 1099 and related reports may be filed electronically or mailed to Idaho State Tax Commission, PO Box 36, Boise ID 83722-0410.
If you chose to file under the Federal/State Combined Reporting Program and have no Idaho withholding to report, no separate reporting is required. If there is withholding to report, Form 967 must be filed and the “Combined Federal/State” box must be checked. If this situation applies, copies of Form 967 must be submitted in paper form to Idaho State Tax Commission, PO Box 76, Boise ID 83707-0076.
Illinois - No filing of information returns is required. Copies must be retained by payers for 3 years.
Iowa - No filing of information returns is required. Copies must be retained by payers for 4 years.
North Dakota - State copies of all Forms 1099-MISC, 1099-B, 1099-G, and 1099-S that are required to be filed for federal purposes are required to be filed with the Office of State Tax Commissioner of North Dakota and are due February 28. The following forms are not filed with North Dakota unless North Dakota income tax has been withheld: 1099-INT, 1099-OID, 1099-DIV, 1099-PATR and 1099-R. Forms 1099 showing North Dakota income tax withheld must be filed with North Dakota Form 307. Forms 1099-MISC reporting nonemployee compensation are due by January 31.
South Dakota - No filing of information returns is required.
Wisconsin - State copies of Forms 1099-R and 1099-MISC (or Wisconsin Form 9b) reporting payments of $600 or more must be filed with the Wisconsin Department of Revenue. No transmittal form is required. Forms 1099 or 9b must be postmarked by February 28, 2017.
Reports of rents or royalties must be postmarked by March 15, 2017 (corporations) or by February 28, 2017 (other than corporations). If you choose to file under the Federal/State
Form W-9 and Form W-9S
You, as a payer, are responsible for obtaining the payee's social security or employer identification number.
Form W-9, Payer's Request for Taxpayer Identification Number, is the official form. Form W-9S, Request for Student’s or Borrower’s Social Security Number is the form to be used when filing Form 1098-E or 1098-T. If a taxpayer does not furnish the number, you are required to withhold 28%. If you receive two incorrect TIN notices from the IRS within three years for the same account, withholding is required until the IRS or Social Security Administration approves the identification number.
Backup withholding is reported annually on Form 945 (Annual Return of Withheld Income Tax). Form 945 is filed only for calendar years when federal income tax was withheld from non-payroll payments. If withholding for the year is less than $2,500, the tax may be paid with Form 945, which is due January 31, 2017.
Electronic Filing
If you file 250 or more of any type of Form 1099, electronic filing is required. The 250 or more requirement applies separately to each type of Form 1099. For example, if 100 Forms 1099-MISC are to be filed, they need not be filed electronically since they do not meet the threshold. However, if you have 300 Forms 1099-R, they must be filed electronically since they meet the threshold.
Taxpayers who transmit their own data are required to file an application for filing information returns electronically (Form 4419), at least 30 days before the due date of the returns. Olsen Thielen & Co., Ltd.
will file electronically for any who desire the service.
A waiver from filing electronically for undue hardship can be requested by filing Form 8508. Request a waiver for filing at least 45 days before the due date of the returns. It is difficult to receive a waiver.
Minnesota requires electronic filing when 10 or more Forms 1099 that report state withholding are filed.
Idaho requires electronic filing when 250 or more Forms 1099 are filed.
North Dakota requires electronic filing when 250 or more Forms 1099 are filed.
Wisconsin requires electronic filing when 50 or more Forms 1099 are filed.
Penalties
If you fail to file a correct information return by the due date and you cannot show reasonable cause, you may be subject to a penalty. The penalty generally is $260 for each information return that is not filed, or is not filed correctly, by the prescribed filing date, with a maximum penalty of $3,193,000 per year ($1,064,000 for certain small businesses). A penalty applies if you:
fail to file timely;
fail to include all information required to be shown on a return;
include incorrect information on a return;
file on paper when you are required to file on magnetic media;
report an incorrect TIN or fail to report a TIN (TIN penalty);
fail to file paper forms that are machine readable; or
fail to prepare forms in accordance with directions.
Prompt correction of errors can reduce penalties to:
$50 for each failure to comply if the failure is corrected within 30 days after the date the return was du, with a maximum penalty of $532,000 per year ($186,000 for certain small businesses).
$100 for each failure to comply if the failure is corrected more than 30 days after the return was due, but on or before August 1 of the calendar year in which the return was due, with a maximum penalty of $1,596,000 per year ($532,000 for certain small businesses).
If you fail to provide correct payee statements by January 31st the penalty is:
$50 if correction is made within 30 days of due date (January 31st), with a maximum penalty of
$532,000 ($186,000 for certain small businesses).
$100 if correction is made by August 1st, with a maximum penalty of $1,596,000 ($532,000 for certain small businesses.
$260 if correction is made after August 1st, with a maximum penalty of $3,193,000 ($1,064,000 for certain small businesses).
Intentional disregard of filing requirements. If any failure to file a correct information return is due to intentional disregard of the filing or correct information requirements, the penalty is at least $530 per information return with no maximum penalty.
* * * * *