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IRS Forms W-2 and 1042-S and International Students

November 10th, 2013 1 comment

International students are non US resident aliens.  Typically they receive some type of income whether it be a stipend, scholarship or fellowship to come to the United States and student.  Consequently, they may receive IRS Form 1042-S and/or Form W-2 depending upon their income type.

SSA Form W-2:

The W-2 form is known as a Wage and Tax Statement and while the form itself is created by the Internal Revenue Service (IRS) the Social Security Administration (SSA) handles the paper and electronic filing. If you are employed in the United States, for any period of time, the employer must report your earnings to both you and the Internal Revenue Service (IRS).

By law, Copy B of the W-2s must be mailed to the recipient no later than January 31.  If you haven’t received a W-2 by mid February, then you would want to contact your employer because its possible they dont have your correct address on file.  The recipient, in this case, the foreign student, will be required to include a copy of each W-2 from with your federal and state income tax forms.

The IRS computer system will match the income paid with what they have received from the employer.

Different kinds of taxes are withheld by employers. The W-2 form has boxes for reporting withholding of Federal Income Tax (Box 2), Social Security (Box 4), Medicare Tax (box 6), State Income Tax (box 18) and local income tax (box 21). Some individuals who received form W-2 will find that all of these boxes have amounts in them, others will find only some or none of the boxes showing tax withheld.

Form 1042-S

Form 1042-S is used to report income paid to a non-resident regardless of whether the payment is taxable. The form has a number of purposes, but mainly used to report scholarship or fellowship income.

It can be used to report wages exempt under a tax treaty, wages earned as an independent contractor, royalties, and scholarship or fellowship grants.

By law, 1042-S forms must be issued by March 15. Many international students receive both form 1042-S and form W-2; some students will receive only form W-2.

The Universities are required to mention only Taxable portions of their scholarships in the Form 1042-S .

Example:

Say, a university paid $26,000 as scholarship split as

Tuition and Fees: $15,000

Educational Tools: $5,000

Room and Boarding: $6,000

1042-S contains only $6000, which are considered non educational expenses, and this amount will be taxed. Usually for students the taxes on non educational expenses is 14% and for other Non Resident Aliens its 30%

Hope you found the information helpful!

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Penalties for filing information returns late, furnishing incorrect payee copies and failing to file

November 10th, 2013 No comments

The Small Business Jobs Act of 2010 increased penalties for filing 1099 information returns late, furnishing incorrect payee copies and failing to file.

The penalty for each information return filed January 1, 2011 or later are:

Filing late…

  • $30 per information return if the payer correctly files within 30 days.  The maximum penalty is $250,000 per year (an outrageous sum!).  For small businesses, the maximum penalty is $75,000 per year.
  • $60 per information return if the payer correctly files more than 30 days after the due date but by August 1.  The maximum penalty is $500,000 per year (again, an outrageous sum!).  For small businesses, the maximum penalty is $200,000 per year.
  • $100 per return if the payer correctly files after August 1. The maximum penalty is $1,500,000 per year and $500,000 per year for small businesses.

Failure to Furnish Correct Payee Copies…

Copy B is sent to the payee.  Here, the maximum penalty for failure to furnish a correct payee statement is $1,500,000 per year and $500,000 per year for small businesses.  The penalties may be reduced if:

  • Reduced $30 per return if the incorrect Copy B is corrected within 30 days after the due date.
  • Reduce to $60 per return if the incorrect Copy B is corrected on or before August 1.

Failure to File…

Failing to file machine readable paper forms or intentional disregard of the 1099 filing requirement is $250 per return for all filers. There is no maximum amount for this penalty.

These penalty amounts will be adjusted annually for inflation.

Needless to say, the failure to file yields the highest penalty.

We with work with alot of companies each year.  The deadline for efiling is April 1 but you can apply for and will be automatically granted a 30-day time extension taking the due date to May 1 (or 2).  Even in May and June, we are still efiling on behalf of businesses.  Even if your late, take the time to prepare quality data and file. All of these penalties use the word “may”.  You may be subject to this penalty.  We have worked with many businesses who have filed extremely late the past few years but have not received a penalty.  Maybe a penalty will eventually come but its possible enough time will pass and the IRS will not take any action.

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8955-SSA Software for Filing New IRS Form 8955-SSA

November 8th, 2013 No comments

Businesses oftentimes have a pension or an arrangement to provide retired employees with regular income when they are no longer working.  Pension benefit plans must generally file Form 5500, Annual Return/Report of Employee Benefit Plan, to report their financial condition, investments and operations. The IRS has announced that Form 5500, Schedule SSA has been replaced by Form 8955-SSA, Annual Registration Statement Identifying Separated Participants With Deferred Vested Benefits. Plan administrators must file this new form with the IRS and not through the EFAST2 filing system. 8955-SSA software at the site 1099fire.com makes it easy to file IRS Tax Form 8955-SSA by paper or electronically.  Service bureau and mail house solutions are also available.

Paper Filing, Electronic filing, Service Bureau…

Form 8955-SSA can be filed by paper or electronically to the IRS. “Our 8955-SSA software makes it easy to import participant information from Excel, print and electronically file IRS Form 8955-SSA quickly and easily”, said Erich J. Ruth, Technical Support for 1099FIRE.  A sample Excel template can be found on the website 1099fire.com which will import into the 8955-SSA software or technical support can guide you through the process of importing by phone or email.

If you file by paper, the plan sponsor and plan administrator must sign and date the form.  You then mail the signed form to the IRS.  Electronically filing does not require a signature at this time.

Electronic reporting of information returns eliminates the need to submit paper documents to the IRS.  Electronically filed information may be submitted to the IRS 24 hours a day, 7 days a week.  “Electronic filing of Form 8955-SSA is easy to do”, said  Ruth and  “The system is updated each year to reflect the format changes that are made by the IRS”. 1099FIRE software creates original, replacement, corrected and test files in the format required by the IRS for electronic transmission.

Filing information returns can be stressful. 1099FIRE can eliminate the stress of filing information returns by electronically filing in a timely manner and at an affordable price. 1099FIRE will beat any competitor price; attain a quote for any service from any competitor and 1099FIRE will provide same, if not more complete, service at a lower price.

Visit the 1099FIRE website at www.1099fire.com to stay up-to-date with important news, tax deadlines and the latest in compliance information.

Due Date…

The 2009 and 2010 filing of Form 8955-SSA was originally due August 1, 2011. The new due date for filing both the 2009 and 2010 Form 8955-SSA is the later of:

(i) the due date that would otherwise apply to the 2010 Form 8955-SSA; or

(ii) January 17, 2012.

A form 8955-SSA filing is due the last day of the seventh month following the last day of the plan year.

About 1099FIRE…

1099FIRE is dedicated to providing feature-rich 1042-S, 1097-BTC, 1098, 1099, 3921, 3922, 5498, 8027, 8955-SSA, W-2G and W-2 software.  Import, print and eFile 1099 forms the quick and easy way!

1099FIRE is a market-leading provider of information-reporting solutions and services for 1099, W-2 and 1042-S filers. 1099FIRE develops and markets a comprehensive range of products that enables any size business or institution to effectively comply with all 1099, W-2 and 1042-S filing requirements.

Have 1099FIRE Service Bureau handle all of your printing/mailing and IRS filing needs – it’s secure, affordable and stress free!

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About IRS forms 5498, 5498-ESA and 5498-SA

November 8th, 2013 No comments

IRS Form 5498 reports IRA contributions.  For those who participate in an individual retirement account, the account’s trustee or issuer must report your contributions to the IRS on an annual basis.  You will receive a 5498 for each Traditional IRA or Roth IRA in which you made contributions. Form 5498 is not required by the IRA account holder to be used for his or her tax returns.

Some of the types of contributions that would be shown include: IRA contributions and year end Fair Market Values made to a traditional IRA, Roth IRA, SEP-IRA, or SIMPLE IRA account, any type of conversions made to these accounts, contributions that have been recharacterized from one IRA type to another, and more.

IRA account holders who made contributions to an IRA, performed a 60-day rollover of funds from one plan to another, converted to a Roth IRA, or did a recharacterization should receive a 5498 form.

IRS Form 5498-ESA reports Coverdell Education Savings Account (ESA) Contributions.

IRS Form 5498-SA reports contributions made to an Archer Medical Savings Account(s).

Unlike the 1099’s which are due in the beginning of the year, 5498 Forms are due in the summer.  Copy B of Form 5498 and Form 5498-SA should be mailed by the end of May.  Form 5498-ESA needs to be distributed to the beneficiary by late April.  All of the 5498 forms need to be paper or electronically filed with the IRS by the end May.

You can request an automatic 30-day time extension online through the IRS FIRE System.

5498 software at the site 1099fire.com software creates files in the format required by the IRS for electronic transmission. The system is updated each year to reflect the format changes that are made by the IRS.

Filing Information Returns electronically is very cost-effective, is easier than filing on paper, and is more accurate. Filing status is available within 2 business days for Forms 1098, 1099, 5498 and W2-G and electronic filers receive a later due date for most returns.

When you file electronically, you are exempt from using pre-printed forms.  You can just print the return in regular paper or email a PDF file to all recipients.

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1099 Tax Forms

November 8th, 2013 No comments

The 1099 IRS forms or information returns are used to report a wide variety of income to the IRS.  Each 1099 IRS form is followed by a few letters to describe the type of information that is being handled:

  • Form 1099-A reports acquistion or abandonment of secured property.
  • Form 1099-B reports the sale of stocks, bonds, mutual funds and other securities.
  • Form 1099-C reports the cancellation of debt.
  • Form 1099-CAP reports change in corporate control and capital structure.
  • Form 1099-DIV reports dividends, qualified dividends, and capital gains distributions.
  • Form 1099-G reports payments from state governments such as unemployment compensation and state tax refunds.
  • Form 1099-INT reports interest income earned.
  • Form 1099-K reports merchant card and third-party payments.
  • Form 1099-LTC reports long term care and accelerated death benefits.
  • Form 1099-MISC reports various types of miscellaneous income including rents, royalties, and non-employee compensation.
  • Form 1099-OID reports original issue discount income.
  • Form 1099-PATR reports patronage dividends paid by a cooperative.
  • Form 1099-Q reports payment from qualified education programs (under sections 529 and 530).
  • Form 1099-R reports distributions from a retirement plan such as an IRA, 401(k) or pension.
  • Form 1099-S reports proceeds from the sale of real estate.
  • Form 1099-SA reports distributions from an hsa, archer msa or medicare advantage msa.

The 1098 series consists of:

  • Form 1098 reports mortgage interest.
  • Form 1098-C reports contributions of motor vehicles, boats and airplanes.
  • Form 1098-E reports student loan interest.
  • Form 1098-T reports tuition.

The 5498 series consists of:

  • Form 5498 reports IRA contributions.
  • Form 5498-ESA reports Coverdell ESA contribution information.
  • Form 5498-SA reports HSA, Archer MSA or Medicare Advantage MSA information.

Other information returns are:

  • Form 1042-S reports foreign person’s us source income subject to withholding.
  • Form 1097-BTC reports bond tax credit.
  • Form 8027 reports employer’s annual information return of tip income and allocated tips.
  • Form 8955-SSA is an annual registration statement identifying separated participants with deferred vested benefits.
  • Form W-2G reports certain gambling winnings.
  • Form W-2 and W-3 reports wages to Social Security.

The list keeps growing.  IRS Form 1099-K is a new form that started in 2012. In 2011, the IRS created IRS Form 3921 and 3922 which reports which employees receive stock upon exercise options.

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Form W-2: Box 12 code

November 8th, 2013 No comments

Box 12 of Form W-2 shows a code followed by a value.  The code indicates the type of payment. This is a listing of the codes for that box.

A: Uncollected social security or RRTA tax on tips. Include this tax on Form 1040.

B: Uncollected Medicare tax on tips.  Include this tax on Form 1040.

C: Taxable cost of group-term life insurance over $50,000 (included in boxes 1, 3 (up to social security wage base) and 5)

D: Elective deferrals to a section 401(k) cash or deferred arrangement .

E: Elective deferrals under a section 403(b) salary reduction arrangement

F: Elective deferrals and employer contributions (including nonelective deferrals) to a section 408(k)(6) salary reduction SEP

G: Elective deferrals and employer contributions to a section 457(b) deferred compensation plan

H: Elective deferrals under a section 501(c)(18)(D) tax exempt organization plan

J: Nontaxable sick pay

K: 20% excise tax on excess golden parachute payments

L: Substantiated employee business expense reimbursements

M: Uncollected social security or RRTA tax on taxable cost of group-term life insurance over $50,000

N: Uncollected Medicare tax on taxable cost of group-term life insurance over $50,000

P: Excludable moving expense reimbursements paid directly to employee

Q: Nontaxable combat pay

R: Employer contributions to an Archer MSA

S: Employee salary reduction contributions under a section 408(p) SIMPLE

T: Adoption benefits

V: Income from the exercise of nonstatutory stock options

W: Employer contributions to an employee’s Health Savings Account

Y: Deferrals under a section 409A nonqualified deferred compensation plan

Z: Income under a section 409A on a nonqualified deferred compensation plan

AA: Designated Roth contributions to a section 401(k) plan

BB: Designated Roth contributions to a section 403(b) salary reduction agreement

DD: Cost of employer-sponsored health coverage

EE: Designated Roth contributions under a governmental section 457(b) plan.

Forms W-2 provide information to your employees, social security, the IRS, and state and local governments.

Employers must file Form W-2 for wages paid to each employee from whom:

  • Income, social security, or Medicare tax was withheld or
  • Income tax would have been withheld if the employee had claimed no more than one withholding allowance or had not claimed exemption from withholding on Form W-4, Employee’s Withholding Allowance Certificate.

Also, every employer engaged in a trade or business who pays remuneration for services performed by an employee, including non-cash payments, must file a Form W-2 for each employee even if the employee is related to the employer.

Form W-2C is filed to correct a previous Form W-2 submission. File a Form W-3C whenever you file a Form W-2C with Social Security, even if you are only filing Form W-2C to correct an employee’s name or Social Security number (SSN).

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How to complete IRS Form 1096

November 8th, 2013 No comments

IRS Form 1096 is a one-page summary sheet that shows the totals and information from various forms. If you are paper filing any 1097, 1098, 1099, 5498 and/or W-2G form, then you must put together Form 1096 and submit that with your paper forms. File a separate Form 1096 with each different type of form. For example, if you are filing six 1099-MISC forms and one 3922, you need to submit one 1096 to summarize the 1099-MISC forms and one 1096 to summarize the 3922 form.

The top part of the form asks for the filer name and address.  Then the name of person to contact, telephone number, email address and fax number.  If any of the contact information is not available, just leave blank.

Box 1, 2. Box 1 shows the employer identification number (EIN) while Box 2 shows the social security number (SSN).  The filer is either an individual with a SSN number or a business with an EIN number.  Make an entry in either Box 1 or Box 2 but not both boxes.

Box 3. Shows the total number of correctly completed forms (not the number of pages) that the filer is transmitting with this Form 1096. As an example, IRS Form 1098 has 3 forms on it per page.  If 2 of those 1098 forms are filled out correctly, then enter “2” in Box 3 of Form 1096.

Box 4. Show federal income tax withheld shown on the forms being transmitted with this Form 1096.

Box 5. Shows the total of the amounts from the specific boxes of the forms listed below:

  • Form W-2G Box 1
  • Form 1097-BTC Box 1
  • Form 1098 Boxes 1 and 2
  • Form 1098-C Box 4c
  • Form 1098-E Box 1
  • Form 1099-B Boxes 2a and 7
  • Form 1099-C Box 2
  • Form 1099-CAP Box 2
  • Form 1099-DIV Boxes 1a, 2a, 3, 8, 9, and 10
  • Form 1099-H Box 1
  • Form 1099-INT Boxes 1, 3, and 8
  • Form 1099-K Box 1
  • Form 1099-LTC Boxes 1 and 2
  • Form 1099-MISC Boxes 1, 2, 3, 5, 6, 7, 8, 10, 13, and 14
  • Form 1099-OID Boxes 1, 2, and 6
  • Form 1099-PATR Boxes 1, 2, 3, and 5
  • Form 1099-Q Box 1
  • Form 1099-R Box 1
  • Form 1099-S Box 2
  • Form 1099-SA Box 1
  • Form 3921 Boxes 3 and 4
  • Form 3922 Boxes 3, 4, and 5
  • Form 5498 Boxes 1, 2, 3, 4, 5, 8, 9, 10, 12b, 13a and 14a
  • Form 5498-ESA Boxes 1 and 2
  • Form 5498-SA Box 1

No entry is required if you are filing Forms 1098-T, 1099-A or 1099-G.

Box 6. Ask that the filer put a check in the box of the forms that they are filing and that this 1096 is a summary for.

Box 7. Is checked if this is the filer’s final return.  If you will not be required to file Forms 1097, 1098, 1099, 3921, 3922, 5498, or W-2G in the future, either on paper or electronically, then check this box.

IRS Form 1096 is signed, the signator’s title is provided, and the form is dated. Mail Form 1096 and other applicable forms to the address listed on the form that corresponds to the location of your principal business address.

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How to complete California Form 592

November 8th, 2013 No comments

California Form 592 is a 2-page form where each page is called Side 1 and Side 2 respectively. The payer uses Form 592 to report additional 7% backup withholding to the state of California.

The first part of Side 1 asks the payer whether this form is amended or a prior year distribution. Neither of those boxes has to be checked. Amended forms can only be filed by the withholding agent. To amend, check the “Amended” box and include a letter explaining what changes were made and why and remit Form 592 and the letter to the FTB.

Then the form asks for the due date. The form is due quarterly. California backup withholding due dates are the same as the due dates for individual estimated tax payments.

Part 1 – Withholding Agent

The withholding agent is the payer. This is the individual or entity that makes payments of $1,500 or more of California Source Income to someone or some entity that is a non-resident of California and who does not have a permanent place of business in California. Part 1 asks for the business name and/or individual name, TIN, address and total number of payees.

Part 2 – Type of Income

Here the FTB wants to know what type of California Source Income is being withheld. There are 8 options lettered A through H:

A – payment to independent contractor B – Trust distributions C – Rents or royalties D – distributions to domestic nonresident partners, members, beneficiaries, S corporation shareholders E – estate distributions F – elective withholding G – elective withholding/Indian Tribe H – other and space is provided for the withholding agent to describe what other means.

There are then 7 edit boxes askes for whole values.

Line 1. Total Withholding, excluding Backup Withholding

Line 2. Total Backup Withholding

Line 3. Sum line 1 and line 2.

Line 4. Amounts of prior payments not previously distributed

Line 5. Amount withheld by another entity and being distributed

Line 6. Sum line 5 and line 5.

Line 7. Total withholding amount due which is line 6 subtracted from line 3. This total is remitted with Form 592-V to the FTB.

Part 3 – Perjury Statement

This section asks for the withholding agent name, phone, signature and date as well as the preparer name, phone, address, PTIN/SSN, signature and date.

Under penalties of perjury, the withholding agent and preparer are declaring that they have examined this return, including accompany schedules and statement, and to the best of their knowledge and belief, the statement is true, correct, and complete.

Side 2 – Schedule of Payees

The other page of 592 lists the payees.

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IRS Letter 2485

November 7th, 2013 No comments

IRS letter 2485 is a common letter typically sent and received in mid-July. The letter says:

“We have no record of receiving an electronic media file containing information returns 1097, 1098, 1099, 3921, 3922, 5498 and/or W-2G (Certain Gambling Winnings) from you for Transmitter Control Code (TCC) for tax year.”

The letter looks like this:

letter_2485

Getting a letter from the IRS concerns everyone. If you read the letter closely though, you see that it’s saying the IRS has not received information returns from the TCC listed on the letter. If you hired a service bureau, then the service bureau probably efiled with their own TCC number. Contact the service bureau that you used to see which TCC number they used to electronically file.

The letter also says that if you don’t use your TCC number for two consecutive years, that your TCC number will eventually be recycled and you will have to apply for a new TCC number using Form 4419.

Service bureau’s can you save you time. You provide the data in excel and they can prepare everything, print and mail (or electronically deliver Copy B) and file electronically before the due date. A service bureau typically likes to use their own TCC number because they can log in at any time and efile. If you want to use your own TCC number, then the service puts everything together with your transmitter control code and transmits the final data file to you. You the client then has to log into the IRS FIRE System and upload the file.

With regards to this letter, you just have to decide whether you want to electronically file on your own or through a service bureau. If you decide to use a service bureau, then just ignore this IRS form letter and your TCC number will eventually be assigned to someone else. If you decide that you want to efile on your own, then you can also ignore this letter and efile on your own next year. If any of the information on the form is incorrect, you can correct it and fax it back to the IRS and they will update your account.

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Step by step instructions to setting up an account with the California Franchise Tax Board

June 15th, 2013 No comments

It’s really easy to setup an account with the Franchise Tax Board (FTB) in California and electronically file Form 592 online through the FTB SWIFT System.

The first step is to send an email to wscs.swift@ftb.ca.gov requesting a login and passcode for the FTB SWIFT System.  You want to provide your company name, address, primary contact name and phone number.

You then wait.  Within a few days, you will receive two emails from the FTB that will contain a login name and temporary password.

With the login name and temporary password, you are ready to access SWIFT via this link:

https://swift.ftb.ca.gov

Use the temporary password and login to access the SWIFT System. You then will be prompted to create your own personal password which must be at least 6 characters in length, contain at least one numeric character, and cannot include any special characters like comma, period, question mark and so forth.  Just upper and lowercase letters and numbers.  Your password must be changed annually but you can change it at any time by using the Password Change feature within the SWIFT System.

You can have an account setup and be ready to electronically file Form 592 within a week.  Once you login, you will see 2 subscription folders.  One is called “ToFTB” and is where you uploaded files intended for the Franchise Tax Board to process.  The other is called “FromFTB” and is where FTB will place files for you to retrieve.

You want to prepare a csv file following 1023S format and upload that to the FTB.

There is one area of confusion and that is a button that says “Set ASCII” or “Set Binary”.  If “Set Binary” is displayed, then SWIFT is expecting an ASCII file.  If you click on “Set Binary”, then SWIFT is expecting a binary file and the button will display “Set ASCII”. A txt or csv file are ASCII files. They are simple notepad files that use ASCII characters.  If you zip a txt or csv file and generate a zip file, then the zip file is a binary file format. The SWIFT system can handle large files so zipping is really not necessary.

Preparing and filing information returns can be stressful. 1099FIRE can help eliminate the stress of filing information returns by providing complete, secure outsourcing solutions for California Form 592. Stay compliant, reduce administrative costs and know that the job will get done right.

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