IRS Form MISC: Why is it Important? Presented by Steve Nielson OFM Statewide Accounting March 2016

Today’s Topics Why does the IRS require a Form MISC? What does OFM have to say about following IRS regulations? What are the consequences of not filing correctly, or not filing at all? How does establishing a vendor number help meet IRS requirements? 2

Today’s Topics How to identify 1099-MISC reportable items IRS changes (PATH Act) Employee remittance advices (travel and other non-payroll reimbursements) 3

Why does the IRS require a Form 1099-MISC? Form 1099-MISC reports taxable payments made to a business or individual:  In the course of trade or business Payments by federal, state, or local governments are also reportable  The recipient is responsible to report amounts on the Form 1099-MISC in their tax return 4

Why does the IRS require a Form 1099-MISC? Report on Form 1099-MISC only when payments are made in the course of your trade or business.  In most cases, file for each person you have paid at least $600 during the year. Examples: Rents (box 1) Services performed by someone who is not your employee (including parts and materials) (box 7) 5

Why does the IRS require a Form 1099-MISC?  Other income payments (box 3)  Payments to the beneficiaries of deceased employees (box 3)  Payments to an attorney (box 7 or 14) The recipient of the Form 1099-MISC uses it to file their taxes 6

Why does the IRS require a Form 1099-MISC? What if I pay $400 in one payment, then $350 in another payment? Do I have to file?  Yes! The $600 threshold applies to the total of all payments made during the year 7

Why does the IRS require a Form 1099-MISC? Are there exceptions?  Yes. Some payments do not have to be reported on Form 1099-MISC, although they maybe be taxable to the recipient, such as: Generally, payments to a corporation Wages to employees Payments to tax-exempt organizations 8

What does OFM have to say about following IRS regulations? Refer to the State Administrative and Accounting Manual (SAAM)  : In the course of state business activities, agencies make payments to others that must be reported to the federal government.  For more information, refer to SAAM 50.10: 9

What are the consequences of not filing correctly, or not filing at all? 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 applies if you fail to file timely, you fail to include all information required, or you include incorrect information. 10

What are the consequences of not filing correctly, or not filing at all? There are other situations that could also cause a penalty:  Filing on paper when you were required to file electronically  Reporting an incorrect TIN  Failing to report a TIN  Filing reports that are not machine readable 11

What are the consequences of not filing correctly, or not filing at all? The amount of the penalty is based on when you file the correct information return:  $50 per return within 30 days of the due date  $100 per return if more than 30 days but by August 1  $260 per return in you file after August 1 or do not file at all. 12

How does establishing a vendor number help meet IRS requirements? In order to establish a vendor number in the state’s accounting system, payees must complete IRS Form W-9, “Request for Taxpayer Identification Number and Certification.” 13

How does establishing a vendor number help meet IRS requirements? Payment data is stored in the accounting system:  Data can be queried by TIN and vendor  The data is used to populate 1099-MISC forms  The data is sent to the IRS by TIN and vendor 14

How to identify 1099-MISC reportable items Refer to the following IRS Publications:  General Instructions for Certain Information Returns (1099):  Instructions for Form 1099-MISC: 15

IRS Changes (PATH Act) Consolidated Appropriations Act, 2016 signed into law on December 18, 2015  Combined several pieces of legislation including the Protecting Americans from Tax Hikes Act of 2015 (PATH Act)  The PATH Act includes changes that will affect Accounts Payable 16

PATH Act Changes to IRS Form 1099 Filing  Effective for 2016 (filed in 2017)  Why the change? The IRS is increasing efforts to reduce tax refund fraud. 17

PATH Act Form 1099-MISC filing with the IRS  Current deadline to file is March 31  As with Forms W-2, the new deadline for Forms that contain information in Box 7 (nonemployee compensation) will be January 31!  This will be a change to the current process For agencies that use the Account Ability application offered by Consolidated Technology Services, the filing date will be moved up from March This means that agencies will most likely need to finalize their reporting data sooner 18

PATH Act Reconcile, reconcile, reconcile (sooner)!  Don’t wait until January Reconcile throughout the year Take corrective action throughout the year Reserve January for:  Final review and  Corrections based on the review For more information, refer to the IRS Instructions for Form 1099-MISC: 19

Employee Remittance Advices (Travel and other Non-Payroll Reimbursements) New process effective April, 2016  Notification of reimbursement will be via the address on file in Employee Self Service (ESS) if: The employee is paid electronically by HRMS The AFRS employee vendor record contains the following:  Employee EFT field = Y (yes)  Vendor Type = 1 (employee)  Employee SSN is present in the TIN field (links to HRMS) 20

Employee Remittance Advices (Travel and other Non-Payroll Reimbursements) To participate in this new AFRS feature, each agency must provide an address for undeliverable s.  When an undeliverable is received, it is the agency’s responsibility to: Notify the employee of the reimbursement Work with the employee to get his/her address updated. 21

Thank you! 22