1099 reporting powerpoint

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1099 Reporting
And other related
issues
What is the purpose of this training?
To enable University of Arizona employees
 To understand why we are required to obtain tax information for
1099 reporting.
 To identify 1099 reportable payments.
 To obtain Tax Identification Numbers for reportable payments.
 To setup vendor numbers in a manner that will comply with IRS
requirements.
Agenda
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What does the law say
Who is 1099 reportable
What information do we need to obtain from them
How do we document W9 information
How do we code vendors for 1099 status
How do we code vouchers for 1099 status
What payments are not 1099 reportable
How does the IRS check TINs
How should Vendor Numbers be setup
What does the law say?
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The Federal law requires that The University of Arizona report
payments for services, fees, etc. to the IRS using Form 1099.
In order to do this the university needs a Federal Taxpayer
Identification Number for each vendor.
If a vendor fails to provide a TIN for a reportable payment, the
university should not set up contracts with them or, if the
service has already been performed, must withhold 28% from
their payment.
Who should provide a TIN?
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Section 6109 of the Internal Revenue Code requires a vendor
who receives a payment to give their correct TIN to persons
who must file information returns with the IRS.
The vendor must provide their TIN, when it is requested by the
university, whether or not they are required to file a tax return or
whether or not the payment is reportable.
What do we need to obtain? A TIN
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A TIN (Federal Tax Identification Number) can be either:
– A SSN (Social Security Number if an individual)
– An EIN (Employer Identification Number) which can be used
by both organizations and individual.
If the vendor is an individual you need to ask:
1. Whether they are a US citizen irregardless of where
they live. If they are not a US citizen you need to
contact FSO-Operations as there are other tax issues
that need to be addressed.
2. Are you an employee of the University of Arizona or any
other State of Arizona agency. If they are a state
employee contact FSO-Operations as there are other
tax issues to be addressed.
Is this a Foreign Vendor?
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If a foreign company or individual performs a service in the US
or is paid for royalties, they are 1042 reportable and you need
to contact FSO-Operations.
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If the vendor resides outside of the US but says they are a US
citizen, the U of A requires proof of citizenship (e.g.birth
certificate) as a SSN is not proof of US citizenship. US citizens
who reside outside the US are reported on a 1099.
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FYI – Canada has SSNs that look just like the US SSNs and
even duplicate some. If the individual is a Canadian citizen or
resident we need to verify (preferably with a copy of the SSN
card) that it is a US SSN.
Can we obtain TINs verbally?
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We are allowed to obtain Tax Identification Numbers verbally
but we are required to document
 Who took the information,
 Who we took it from and
 When.
The documentation is scanned/faxed into Docuware so we also
need the Vendor # and Vendor Name on the documentation.
The required information can be put on Vendor Notes (10N or
20N) in FRS and faxed into Docuware.
Be careful of franchises as each has a different EIN.
What else do we need to obtain? Tax
exempt status.
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Vendors who are exempt from 1099 reporting include
government agencies, corporations, 501C Non-Profit
Organizations and certain other organizations. Corporations
must show:
 Corporation
 Inc
 PC
 Corp
Medical and Legal Corporations are NOT exempt.
An LLC or Ltd is NOT a corporation, is reportable and must
provide a TIN.
What is the “Eyeball Test”?
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The IRS allows us to use the “Eyeball Test” and assume
exempt status for corporations, government agencies,
hospitals, insurance companies, churches, universities and
schools and banks. “Eyeball” means that the invoice or other
legal document, including the WWW, shows the above. We
cannot take this info verbally but documents allowed are:
 Company letterhead sent or faxed from payee.
 Pre-printed invoice from payee with company name.
 Official web site of payee company showing company
name, and address.
How do we document W9 Info?
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Documentation must be kept on all W9 information and is
scanned into Docuware including copies of W9s, copies of
websites and letterheads.
We already maintain invoices in Docuware and just need to
note on Vendor Notes (10N or 20N in FRS) where we saw the
designation (INC/INV 1/14/05 RA).
Any time we receive verification of exempt status or a tax id #
we need to note on Vendor Notes where we got it from. (E.g
EIN & PARTNERSHIP/W9 1/10/05 RA or SSN & SOLE
PROP/W9 1/7/05 RA) so we can find the verification if
questioned.
How do we code vendors for 1099
status?
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The 1099 field in FRS is coded C, I or F:
 C - Exempt vendors (Corporations, government
agencies, hospitals, universities or colleges, insurance,
churches, banks and 501c nonprofit organizations.)
 I - Non-exempt vendors (Individuals, sole proprietors,
LLC or LTD, partnerships or if we do not have in writing
that a vendor is exempt)
 F - Foreign vendors. If the foreign vendor is performing a
service in the US they will fall under 1042 reporting and
FSO-Operations needs to know about them before
payment.
What is the Tax ID Type?
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The Tax ID type is “T” for Employer Id #s or “S” for Social
Security Numbers.
This is important as there are some TINs that are both SSNs
and EINs.
Ask, Ask, Ask if the TIN is a SSN or an EIN. This not only
assures that it is coded correctly but helps identify Sole
Proprietors that have given you a company name.
If the vendor is an individual or Sole Proprietor we must also
have the name of the person the SSN or EIN is for as this is
what the IRS will look for.
FRS Vendor Screen
What are the 1099 Voucher Codes?
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L – Rent or lease
M – Medical, dental, veterinary, ambulance, psychiatric and
physical therapy services.
N – Non employee compensation – Any fee for service
P – Other payments that are not fees for services.
R – Royalties
Z – Payments for settlements when the check is made out to
both the attorney and the claimant.
1099 Form
L - Rentals or Leases
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Real estate rental
Equipment rental
Charter of bus or airplane
If the driver's or pilot's fee is included in the charter fee, include
the whole payment under the code of L.
– If the driver's or pilot's fee is listed separately on the invoice,
code the fee as an N and the rental as an L.
L - Rentals or Leases (cont)
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Film rental
Furniture or office equipment rental
Spring fling rentals
Rent-to-Own
Bed & Breakfast
Hotel room rentals (If the hotel bill includes room rental, code
entire bill as "L")
M - Medical
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All medical or health care services even if the vendor is
incorporated.
Dental services
Veterinary services
Ambulance services
Psychiatric services
Physical therapy
N - Non-employee Compensation
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ANY tangible purchase that includes a service (code whole
invoice as N)
Advertising
Airline tickets
Artistic creations purchased from the artist
Banquets
Catering
Commissions
Consultants fee
N - Non-Employee Comp (cont)
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Entertainers
Honorarium or lecturer's fee
Laundry & cleaning services
Legal fees –
 All legal fees are reportable even if the vendor is a
corporation.
 If who receives the payment cannot be determined,
code as Z
Maintenance agreements
Medical tests analyzed by the vendor
Medical Insurance
Medical research
N - Non-Employee Comp (cont)
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Membership/Dues
Programming
Per-diem exceeding the per diem as established for University
employees on travel status.
Photographer services
Professional Service Fees (Accountants, Architects, etc.)
Publishing fees
Registration/Conference fees
N - Non-Employee Comp (cont)
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Software support and software license maintenance fees
(Software is not reportable)
Sports officials
Subject Pay
Tickets
Transportation service
Trash collection and sewer service.
Travel agencies
P- Other Income
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Final payroll payments of deceased employees to beneficiary.
Prizes or awards that are not for services such as the prizes
given at Spring Fling.
R - Royalties
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All royalty or copyright payments
License Fees for reprints
Intellectual property fees
Permission Fees for use of copyright material.
Z - Legal Settlements
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Legal settlements when the attorney's legal fee cannot be
determined. (e.g. The attorney's and the claimant's name on
one check)
Legal fees for services provided the University of Arizona are
“N”
What payments are not 1099
reportable?
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Tangible items – Code T
Expense reimbursement, with original receipts – Code X
Scholarships or fellowships – Code S
Payments to Foreign vendors for services performed in the US
or royalties – 1042 reportable (including 3rd party payments).
Payments to Foreign vendors for services (not royalties)
performed outside of the US – Not reportable unless they show
as a US Resident for Tax purposes on the Substantial Presence
Test (ask FSO-Operations)
Employee Perks (including 3rd party payments) – W2
reportable.
Employee Perks – (Just an FYI if you
run across these payments)
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Something of value given to employees over and above regular
wages and benefits.
Employee reimbursement of auto leases, repair/maintenance,
insurance, licensing and registration.
Employee Housing (Apartment rentals, house payments,
etc.) including that for short term employees.
Refund of Insurance
Child Care
Commuting between home and work.
Moving Expenses including third party payments for rental car
and lodging in Tucson.
Gifts or awards of money or goods.
How does the IRS check TINs?
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The IRS runs all vendors through a program that matches the
TIN with the name(s).
If they don’t match we get a B Notice and will be penalized if we
report them without getting new info.
They are looking for the name the TIN was issued for and they
look at both address lines.
If we receive a B Notice we cannot verify the information
verbally but must have a signed W9 and must immediately start
withholding 28% on any payment or freezing the vendor.
A 2nd B Notice requires verification of name and TIN from the
Social Security Administration or Internal Revenue Service.
How should Vendor Numbers be set
up?
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The 1099 tape has two lines for names but we have only one.
To show two lines on the 1099 tape the first Address line in
FRS must have DBA or DIV in front of the name so it will be
picked up as the 2nd Address Line.
The legal name, the name that the TIN was obtained under,
must be on one of the two lines in order to avoid B Notices.
Individual or Sole Proprietor
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The individual’s name should be on 1st line (SUSAN *SMITH)
and the DBA, if any, on 2nd line (DBA SUE’S STICHES).
The SSN or EIN must belong to the name on the 1st line.
Partnership
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If the partnership is using a SSN, the name of the person
whose SSN it is must be in the name line (SUSAN *SMITH)
and the name of the Partnership on the first Address Line with
DBA in front (DBA SUE AND SALLY’S STICHES)
If the partnership has an EIN put the name of the partnership
on the Name Line.
Companies
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The legal name can be either on the name line (SSS LLC) with
a DBA on the first Address Line (DBA S & S STICHES).
Or the DBA name can be on the Name line (S & S STICHES)
and the legal name on the first Address Line with DIV (for
“division of”) in front (DIV SSS LLC).
Organization and Conferences
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The name of the organization that the TIN is for must be on the
Name line or on the first Address Line with DIV or DBA in front.
(e.g. SEWING SOCIETY)
The name of the conference means nothing to the IRS. (e.g.
2005 CONFERENCE ON SEWING)
Get a correct address as often the address given is not the
address we need to mail the 1099 to.
Best of all get written corroboration that the organization is
exempt so we don’t have to report!
Organizations at a University
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Most organizations need to supply their own TIN, not that of the
university.
We require all our organizations to get their own TIN before we
pay them as they are not legally part of the University even
though the members may be students, faculty or staff at the
university.
If an organization does not have an FRS account # they are
probably not part of the U of A. If they do have an FRS account
# they should be paid with an IDB.
Additional resources
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From the IRS Website (http://www.irs.gov) you can download a
W9 form and instructions and a 1099 form and instructions.
Download
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