1099 Tax Software Blog

You can download any 1099 tax form from the IRS website.  This first page of the form goes out of the way to say

“Do not file copy A downloaded from this website. The official printed version of this IRS form is scannable, but the online version of it, printed from this website, is not.  A penalty may be imposed for filing forms that can’t be scanned.”

There are a few key points to take from this paragraph:

1. Copy A is a red-ink form. It is a special red-ink.  If you try to print Copy A with store bought red-ink, its not the same type of red-ink that the IRS uses to print out the 1099 forms. The IRS is asking you to not print Copy A and try to submit because store-bought red-ink forms will not scan correctly.

2. You can print Copy B or C to plain paper with black ink.  Copy B and C is the payee and payer copies.  You don’t even have to print and mail Copy B to the recipient.  You can convert to PDF and email or just print it out and hand the form to the recipient.

Form W-2 is different.  While Form W-2 is developed by the IRS, you paper or electronically file with the Social Security Administration (SSA).  SSA developed substitute Copy A forms for the W-2.  Software developers will receive a PDF of the substitute W-2, W-3, W-2C and W-3C forms in June or July.  Then can build those substitute forms into their software application and then mail the forms to SSA for review.  SSA will test to see if the forms will align with their scanners.  If they do, then that software developer will receive a letter of approval letting them know that their substitute forms can be read by SSA scanner equipment.  You receive on letter of approval for the W-2, W-3 forms and another for the W-2C, W-3C forms.

An employer can print Copy A of a substitute Form W-2 on plain paper with black ink.  Its a great feature and service offered by SSA.

You want to electronically file California Form 592 to the Franchise Tax Board (FTB).  Smart thinking.  Electronic filing is:

1. Quick and easy to set up.  It takes about 2-5 days to get a login and passcode.

2. Easy to transmit secure, confidential data.

3. Gives you the opportunity to validate the file before transmitting and correct errors.

4. Gives you a receipt or acknowledgment that the FTB received your file.

To efile, the data must be in 1023S format which is just a comma delimited notepad file where the data is spaced out perfectly.  Each field of the csv file is discussed below.

Payee number (5 numeric characters)

Enter a sequential number of the payee beginning with “1”.  This field can be at most 5 characters in length which means than 99999 is the largest file that can be submitted.

Tax Year (4 numeric characters)

Enter the 4-digit year in which this withholding was taken place.  You can’t combine 2 or more tax years in a file.  If you are filing separate years, then create a separate file for each tax year.

TIN Number (9 numeric characters)

The withholding agent should obtain TINs for each payee.  Each TIN is 9 digits in length with no dashes or spaces.  If a TIN is unknown, this field should be left blank.

TIN Type (6 alpha characters)

There are 5 options here: SSN, CaCorp, FEIN, ITIN, or TPID.

First Name (11 alpha characters), MI (1 alpha character) and Last Name (17 alpha characters)

These fields only apply if the payee is an individual or grantor trust.

If the payee is an individual, then enter the first and last name and middle initial.  If the payee is not an individual, then these fields should be left blank.

There are several common but obvious errors.  One is length of each field.  If the first or last name exceeds 11 or 17 characters in length respectively, then submit the first 11 or 17 respective characters. Exclude Dr or Attorney or Mr or Mrs or M.D. or other titles from the name.

Other Name Line 1 (35 alpha or numeric characters), Other Name Line 2 (35 alpha or numeric characters)

The other name fields are used when the payee is not an individual.  Enter the name of the corporation, S corporation, partnership, trust, etc.  Do not enter the name of an individual contact person or trustee.

Address Line 1 (30 alpha or numeric characters), Address Line 2 (30 alpha or numeric characters), City (17 alpha or numeric characters), State (2 alpha characters), ZIP 5 (5 numeric characters), ZIP 4 (4 numeric characters), Country (22 alpha or numeric characters)

The address, city, state and zip fields pertain to the individual (first name, mi, last name) that you filed out or the non-individual (other name line 1, line 2).

Slash (/), hyphen (-), period (.), comma (,) and number (#) are the only special characters the FTB allows in Address Line 1 and Address Line 2.

If the payee is a US resident, then show USA in the country field.  Otherwise, leave the state field and zip codes blank and spell out the names of the foreign country up to 22 characters in length.  No special characters are allowed for the city field.

Domestic Quarter (1 numeric character)

Form 592 is filed quarterly.  Enter either 1, 2, 3, or 4 to represent when the withholding was completed.

Income Type (22 alpha characters)

Enter one of the following to characterize the type of California source income the payee received:

Independent Contractor, Entertainment, Rent or Royalty, Estate Trust, Foreign Partner, Domestic Partner, Backup Withholding, Foreign Partner Domestic Partner

Income Subject to Withholding (13 digits where 10 digits are to the left of the decimal, then the decimal point, then 2 digits to the right of the decimal)

Enter the amount of California source income subject to withholding.  Do not use the $ sign or comma and use 0.00 to show no amount.

Amount Withheld (13 digits)

Enter the amount of California tax withheld.

Amount Withheld by Another Entity (13 digits)

Enter the amount prevoiusly witheld by another entity and allocated to the payees listed.

Prior Payments (13 digits)

Enter the prior payments for the taxable yaer that were sent using Form 592-A or any prior payments as a result of amended Forms 592 for a prior period.

Foreign Prior Year Credit (13 digits) Foreign Balance Due (13 digits) Foreign Overpayment (13 digits) Foreign Credit to next Year (13 digits) Foreign Refund (13 digits)

Enter 0.00 to show no amount.

Foreign Tax Year End (10 numeric characters)

This date is formatted as mm/dd/yyyy and includes the slashes.

Form W-2G is used to report gambling winnings.  W-2G is different from Forms 1098 and 1099 in that the 1099 forms must be paper filed on red-ink forms while Copy A of Form W-2G can be printed on plain paper with black ink and mailed along with Form 1096 to the IRS.

If your gambling winnings are high enough, the payer must provide a IRS Form W-2G to you and to the IRS, reporting the amount of your gambling winnings.

The types of gambling fall under the following three headings:

• Horse Racing, Dog Racing, Jai Alai, and Other Wagering Transactions Not Discussed
• Sweepstakes, Wagering Pools, and Lotteries
• Bingo, Keno, and Slot Machines

Form W-2G is used to report income and withholding related to gambling.　 Generally, you will receive a Form W-2G if you receive:

• $600 or more in gambling winnings and the payout is at least 300 times the amount of the wager (except　winnings from bingo, keno, and slot machines);
• $1,200 or more in gambling winnings from bingo or slot machines;
• $1,500 or more in proceeds (the amount of winnings less the amount of the wager) from keno; or

Any gambling winnings subject to federal income tax withholding.

Who must file Form W-2G

The payer, namely, the organization sponsoring the gaming event, must file Form W-2G when an individual wins a prize over a specific value amount.  The form is used to report gambling winnings OR to report gambling winnings and any federal income tax withheld on the winnings.

Form W-2G due dates

Copy B and C is due to the winner by the end of January. Copy A is due to the IRS by the end of February.　 If you are filing electronically, you have until March 31 (an additional month) to file and you can seek also seek an extension of time to file.

How do I complete Form W-2G?

Check the “Corrected” box at the top of the W-2G form if applicable.

Enter the payer’s name, address, federal identification number and telephone number.

Enter the winner’s name and address.

Box 1. Enter the gross winnings.

Box 2. Enter the Federal income tax withheld.  Federal income tax must be withheld at the rate of 25% on certain winnings less the wager.

Box 3. Select the type of wagers, which include: Horse track race, Dog track race, Jai-alai, State-conducted lottery, Keno, Bingo, Slot Machines and Other.

Box 4. Enter the date won!

Signature and Date. Sign and date Form W-2G if your are the only person entitled to the winnings.

There is a tremendous level of comfort in filing 1099 forms by paper. Especially if you are submitting just a few 1099 tax forms per year.

My accountant is probably 80 plus years old (I never asked him his exact age). Every year when I file my taxes, I have one 1099-MISC tax form that needs to be filled out and submitted. My accountant fills out IRS Form 1099-MISC by hand with an ordinary pen and hands it to me to mail.

There were 2-questions I investigated and write about below.

Can I submit handwritten 1099 forms to the IRS?

Yes.  General Instructions for Certain Information Returns can be found on the internet. If you search for Paper Document Reporting you can read:

“Although handwritten forms are acceptable, they must be completely legible and accurate to avoid processing errors.”

Use black ink, block print and not script characters. The general instructions also state that if you have no data for a particular box to just leave it blank. Do not enter 0 or “none” if you have no money value.

Send the 1099 form along with the 1096 form as separate forms. Do not use staples on any of the forms.

Where to mail paper information returns?

If your principal business or legal residence is located in:

Alabama, Arizona, Arkansas, Connecticut, Delaware, Florida, Georgia, Kentucky, Louisiana, Maine, Massachusetts, Mississippi, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, Texas, Vermont, Virginia or West Virginia, then you mail your paper information returns to Department of the Treasury, Internal Revenue Service Center, Austin, TX 73301.

If your principal business or legal residence is located in:

Alaska, California, Colorado, District of Columbia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Maryland, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, North Dakota, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Utah, Washington, Wisconsin or Wyoming, then you mail your paper information returns to Department of the Treasury, Internal Revenue Service Center, Kansas City, MO 64999.

And if your legal residence or principal place of business is outside the United States, file with the Department of the Treasury, Internal Revenue Service Center, Austin, TX 73301.

Due Dates

Copy A of 1099 forms typically must be postmarked and mailed by the end of February.  If you file electronically, you get an extra month of time to file.  Also when filing electronically, you can automatically apply for an receive a one month extension.

I hope this helps when paper filing this year.

The IRS encourages businesses to file information returns electronically.

Your first step is to attain a Transmitter Control Code or TCC number.  A TCC number is a five-character number that typically consists of 2 digits, then 1 letter, then 2 more digits.  To get a TCC number assigned to your business, download, fill out and submit Form 4419, Application for Filing Information Returns Electronically (FIRE). There are a few subtle details embedded in Form 4419:

1. Only businesses with a Employer Identification Number (EIN) can apply for a TCC number.  Individuals with a SSN number can not apply.  In the past, individuals could apply for a TCC number and transmit on behalf of others but that option is no longer allowed.

2. You select on Form 4419 which information returns you want to file electronically.  One TCC number will give you authorization to efile any Forms 1097, 1098, 1099, 3921, 3922, 5498 and W-2G.  But the TCC number you attain for efiling the 1099 forms will not let you efile 1042-S or Form 8027 or 8955-SSA.  You need a separate TCC to efile IRS Form 1042-S, another separate TCC number to efile Form 8027 and another unique TCC number to efile IRS Form 8955-SSA.

Form 4419 must be signed and dated by an official of the company or organization requesting the TCC number.   The quickest way to submit Form 4419 is by fax and a toll-free fax number is shown on the form.  You can also mail Form 4419 and the mailing address is also shown on the form. But I recommend faxing rather than mailing.  I also recommend not mailing AND faxing.  Either mail in Form 4419 or fax it, but don’t mail and fax in the hopes of getting a TCC number quicker.  If you do both, it will confuse the IRS and there will be delay in getting the TCC number.  Or worse, you have two TCC numbers and the IRS will call and ask you why your not using one of the TCC numbers.

When its tax season and the IRS is busy, it usually takes about 7 days to get a TCC number by fax and at least 30 days to attain a TCC number if you mailed in Form 4419.

Once a TCC number is assigned to your business, you can go to the site http://fire.irs.gov and click on Create a New Account.

When do you apply backup withholding?

A payer typically withholds 28% on any payments if the payee fails to furnish a correct taxpayer identification number (TIN) to the payer. The state of California, unlike other states, requires an additional 7% backup withholding if the payer is already required to withhold 28% by the IRS and if the total payment of California source income for the calendar year exceeds $1,500.

The California Franchise Tax Board (FTB) created Form 592 which is known as the “Resident and Nonresident Witholding Statement“.  Any individual or entity who makes payments of $1,500 or more of California Source Income to a person, corporation, partnership, fiduciary, partner, beneficiary, shareholder, member or vendor who is a non-resident of California and who does not have a permanent place of business in California, must remit Form 592 quarterly either by paper or electronically to the FTB.

There are 3-forms: 592, 592-B and 592-V.  Form 592 is the statement the withholding agent fills out, signs, dates and submits to the FTB.

Form 592-B is one page form that is sent to the payees and shows how much money was withheld.

Form 592-V is a voucher payment form. The payer sends any payment due with Forms 592 and 592-V to the Franchise Tax Board.

The payer or withholding agent should retain Form 592 for at least 4 years.  You can easily print a copy to PDF and retain that PDF file.

Electronic Delivery of 592-B

A payer or agent who withholds 7% to the payee can print Form 592-B and mail to the payee.

592-B has to be furnished to each payee typically by the end of each quarter.  592-B can printed on plain paper with black ink. Many withholding agents, from large to small, balk at the idea of printing and mailing 592-B to payees.  Postage, envelopes, addressing, stuffing and sealing all cost time and money increasing the overall cost of mailing to 78 cents to $1 or more per mailing.

The cost of mailing can be reduced by electronically delivering the information returns to the payees.

There is one catch.  And that is the payee must consent to receiving Form 592-B in an electronic format.  The withholding agent can put together a simple form that instructions when and how the payee will receive Form 592-B in electronic format and have the payee sign that consent form.

The payee has the option to withdraw consent.  Also, if the withholding agent correct a payee’s Form 592-B, then agent must furnish the corrected form within 30 business days.

There are many services for bulk electronically delivering 592-B to payees.  E-mail can be tracked to see who opens their email and who never opened the sent email with the information return.

By going completely paperless, you can save as much as 50% on priting and mailing 592-B tax forms.

1099 forms are a type of information return that record different types of taxable income. The Internal Revenue Service requires 1099 forms to be submitted before the end of the tax year to both the IRS and the payment recipient(s). 1099 forms are used to report non-wage payments, or payments that are not considered W-2 wages, and several other types of payments and income.

There are several circumstances in which a person or business should submit a 1099 form to the IRS and payee. The 1099-MISC form covers many types of payment while other variants cover other specific types of payments that the 1099-MISC does not.

For most payments that the 1099-MISC form covers, the minimum amount necessitating reporting is $600 or more. However, there are exceptions including any substitute dividends, royalty payments, and tax-exempt interest that are more than $10. Any payment to attorneys, members of a fishing boat crew, or payee subject to backup withholding must be reported on a 1099-MISC form. If a person or business has paid a doctor, accountant, or other professional $600 or more for consultation or services, they should submit a 1099-MISC form to both the service provider and the IRS.

Some of the other payments that require a variant of the 1099 form include any interest income, distributions from IRA and pension plans, distributions from medical and health savings accounts, barter exchanges, and others. Since there are a wide variety of payments that require a 1099 form submission, it is best to call the IRS or check their website whenever there is a question about whether or not a 1099 form should be submitted.

Any payment to a freelancer or contractor that is more than $600 must be reported with a 1099 form. A potentially difficult part of the process of information reporting is determining whether a hired worker is considered by the IRS an employee or contractor. In the case that the worker qualifies as an employee, a W-2 form would be submitted to the employee and IRS. If there is a doubt, an IRS Form SS-8 may be submitted in order to receive an official decision by the IRS on the classification of the worker.

As a general rule, 1099 forms must be submitted to the taxpayer by January 31st, and to the IRS by February 28th. The form may be submitted to the IRS electronically to save time.  If a business or individual has 250 or more 1099 payees in one calendar year, the forms must be submitted electronically to the IRS.

In the United States, backup withhold is a percentage withheld by the payers to be paid to the IRS (instead of to the payee). There are several reasons why backup withholding may be required. The payer must withhold 28% if:

1. Payee fails to furnish a correct TIN to the payer.

The payee fills out Form W-9 for the payer.  The payer can run TIN matching to see if the TIN matches up with the name via the IRS database.  If it doesnt match up, begin backup withholding on any reportable payments. Every year, send a letter soliciting the payee for the correct TIN.  Continue backup withholding until you, the payer, receive a correct TIN.

2. IRS notice that the payee’s TIN is incorrect.

A “B” notice is a backup withholding notice.  Its a letter from the IRS to the payer letting you know that a particular payee’s TIN is incorrect.

If you receive the first “B” notice, send that notice and Form W-9 to the payee to acquire a correct name/TIN combination.

A second “B” notice tells the payee to contact the IRS or SSA to obtain a correct name/TIN combination.

If you IRS sends you, the payer, a “B” notice letting you know that a payee’s TIN is incorrect, then withhold at 28% on any reportable payments made to the account more than 30 business days after you received the notice.  Continue withholding until you receive a certified Form W-9.

3. IRS notice that the payee is subject to backup withholding due to payee underreporting.

Its a rare but simple letter.  The letter notifies the payer that the payee has unreported taxable payments.  The IRS notifies the payer in writing to continue backup withholding until a certain date.

4. Payee fails to certify that she or he is not subject to backup withholding.

Failure to follow the backup withholding rules can result in penalties to the payer for filing incorrect information returns. The payer may also become liable for any uncollected amounts.

Some states, like California, require an additional 7% backup withholding if it is already required by the IRS.

Backup withholding does not apply to wages or pension payments.

You must have a transmittal control code or TCC number in order to file information returns electronically to the IRS. To apply for a TCC number, just download, fill out and submit IRS Form 4419. New users are required to submit Form 4419, Application for Filing Information Returns Electronically, to IRS/ECC-MTB at least 15 days before the due date of the return(s) for current year processing. Upon approval, a five-character alpha/numeric Transmitter Control Code (TCC) will be assigned. IRS/ECC-MTB uses the TCC to identify payers/transmitters and to track their files through the processing system. Once a transmitter is approved to file electronically, it is not necessary to reapply unless the payer has discontinued filing electronically for two consecutive years. Payers who know that the assigned TCC will no longer be used, are requested to notify IRS/ECC-MTB so these numbers may be reassigned.

If you submit less than 250 information returns per calendar year, then you are not required to file electronically. If you submit250 or more information returns, youmust file such returns electronically. This 250 requirement applies separately to each type of form that you are required to file.

Of the 400 1099-MISC forms that you filed electronically, lets say you need to file 75 corrections. You can file those corrections by paper because the number of corrections for Form 1099-MISC is less than the 250 filing requirement. If you filed 250 or more Forms 1099-MISC corrections, then those must be filed electronically.

Form 8508 is a request for waiver from filing information returns electronically.Only the person required to file electronically can file Form 8508. A transmitter cannot file Form 8508 for the payer, unless he or she has a power of attorney. If you have a power of attorney, attach a letter to the Form 8508 stating this fact. If your request is not due to undue hardship, attach a detailed explanation of why you need a waiver.

The IRS announced that it will defer the new requirement for employers to report the cost of coverage under an employer-sponsored group health plan, making that reporting by employers optional in 2011.

The draft Form W-2 includes the codes that employers may use to report the cost of coverage under an employer-sponsored group health plan. The Treasury Department and the IRS have determined that this relief is necessary to provide employers the time they need to make changes to their payroll systems or procedures in preparation for compliance with the new reporting requirement. The IRS will be publishing guidance on the new requirement later this year.

Although reporting the cost of coverage will be optional with respect to 2011, the IRS continues to stress that the amounts reportable are not taxable. Included in the Affordable Care Act passed by Congress in march, the new reporting requirement is intended to be informational only, and to provide employees with greater transparency into overall health care costs.