1099 Tax Software Blog

The District of Columbia and state of New Jersey requires reporting of 1094 and 1095 forms to verify health coverage information supplied by individual Income taxpayers. Employers and all other providers of Minimum Essential Coverage to New Jersey residents must send health-care coverage returns to the State for tax year 2019.

Companies are encouraged to send data pertaining only to New Jersey full-year and part-year residents. Filers must provide 2019 coverage information electronically by March 31, 2020. The due date for District of Columbia is June 30, 2020.

Out-of-State Employers of New Jersey Residents:

Out-of-State employers who employ New Jersey residents have the same filing requirements as in-State businesses. These requirements are not limited to businesses that withhold New Jersey payroll taxes. If you are an out-of-State employer, you must ensure that the state of New Jersey receives any required 1095 document for each New Jersey resident you employ. Insurers, government agencies, multiemployer plans, and all others responsible for reporting Minimum Essential Coverage to New Jersey residents also must file the required information with the State.

1099FIRE Service Bureau/NJ Upgrade

1099FIRE has established an account with New Jersey to be able to electronically transmit 1095-B and 1095-C filings on behalf of our customers.  If you are an outsource customer we can file the state filing on your behalf using your original data file.  We will generate a second file containing only the NJ residents in the format required by the state.

If you are a software customer filing on your own, the software can be upgraded to include the NJ filing module for an additional fee.  Please note, you will need to establish an account with the NJ Treasury department.

We can answer almost any technical support question you have and we are happy to help.

The most common questions we receive are:

1. How do I import data into your 1099FIRE software? Can you show me how?
2. How can I electronically transmit a file to the IRS? Can you show me how to upload a test
   file?

We can walk you through importing data into our software, printing or converting to PDF, setting
up an account with the IRS and attaining a Transmitter Control Code (or TCC number) as well
as submitting a test file directly to the IRS. Its easy to do and once you learn how to file electronically
you will never go back to paper filing. Electronic filing is a breeze once you learn how and we are
thrilled to walk you through the process and answer any question you have.

We have time before November 28 (Thanksgiving day) to talk by phone and answer any question
you have and to go through examples. Please call (480-460-9311) or email (support@1099fire.com) to
setup an appointment and we will call you back at a convenient time and answer questions and walk
you through examples.

There are 3 new IRS forms for tax year 2019. Form 1098-F is not required until further notice.

IRS Form 1098-F is known as Fines, Penalties, and Other Amounts is a new information return that was created from the 2017 Tax Cuts and Jobs Act. Form 1098-F is used by government or government entities that exercise self-regulatory powers to report fines, penalties, and other amounts to recipients who paid those amounts.

IRS Form 1099-LS is titled Reportable Life Insurance Sale and reports the amount paid to a recipient from a life insurance sale, the date of sale, and Issuer’s name.

Form 1099-SB is titled Seller’s Investment in Life Insurance Contract and is used by the issuer of a life insurance contract policy to report the amount the seller would receive upon surrender of the transferred insurance contract, the issuer’s estimate of investment in the life insurance contract as well as the assigned policy number.

Letter 226-J is a penalty assessment notice that the IRS sends to employers with 50 or more full-time employees.  Letter 226-J is the first letter you would receive from the IRS and the first step the IRS has taken to enforce the ACA mandate.

One of the most common reasons Letter 226-J is sent is because the employer has yet to submit an ACA information filing to the IRS for tax year 2015, 2016, 2017 or later.  If you didn’t paper or electronically file the 1095-B or 1095-C forms, now is your time to do so.  We can help.  We can prepare for you to review current or prior year 1095 forms and once approved, we can electronically transmit to the IRS and forward the results when they arrive.  All e-filing is done using our company’s transmitter control code or TCC number. This eliminates the hassle of obtaining an account with the IRS.  Just contact sales at (480) 460-9311 to get started.

Once a response has been submitted to the IRS, the client should expect to receive a second letter from the IRS. This will be Letter 227, which is a series of five different letters that the IRS is using to acknowledge responses to Letter 226-J. The different versions describe additional actions that may be required of an employer to address. They are listed here in their order of preference:

Letter 227K: This is the letter that you hope your client receives. It means that the case has been resolved in the employer’s favor. Essentially, 227K acknowledges that the information in the employer’s response to Letter 226J was accepted, the employer does not anything and the IRS has closed its inquiry.

Letter 227L: While not as thrilling as receiving Letter 227K, receiving this version of Letter 227 is still a plus. The IRS sends this version of the letter when it agrees with the employer that the amount owed should be reduced. While the employer will still have to make a payment, it won’t be as much as originally requested.

Letter 227M: This version of the letter is not one that you want your client to receive. This is the version the IRS sends when it disagrees with the employer’s response to Letter 226J and reiterates its demand for the original penalty assessment.

The IRS only likes ASCII characters.  ASCII stands for American Standard Code for Information Interchange. The first 128 characters are all the characters from your keyboard.  The lower and upper case letters, digits and extra characters like !@#$% and so on.  Examples of non-ascii characters are é, ö or ĉ and more.  Anything with an accent or tilde are not characters that your keyboard can naturally generate.

Whether you file a Form 1095, 1099, 8027, 1042-S, 8966 or anything in between, the IRS will reject a file that has non-ascii characters.  Some non-ascii characters are really hidden and very difficult to find.  One way to find non-ascii character is by using Notepad++.  In Notepad++, go to

Search | Find characters in range | Non-ASCII Characters (128-255)

Then step through the document to find each non-ascii character.

Colleges and universities use IRS Form 1098-T to report amounts relating to qualified tuition and related expenses.

The IRS imposes a penalty per record for incorrect or a missing taxpayer identification number for every tax form except IRS Form 1098-T. The new law reads:

“No penalty shall be imposed under section 6721 or 6722 solely by reason of failing
to provide the TIN of an individual on a return or statement required by section
6050(S)(a)(1) if the eligible educational institution required to make such return
contemporaneously makes a true and accurate certification under penalty of perjury
(and in such form and manner as may be prescribed by the Secretary) that it has
complied with standards promulgated by the Secretary for obtaining such individual’s TIN.”

When TIN matching, a valid name consists of letters A-Z, a-z, space and hyphen.  Which means that

. (period)
, (comma)
: (colon)
‘ (apostrophe)

and !@#$%^&*()+=<>”/[]{} are not allowed.  Our TIN match ready program will look for and remove these characters and also removed any non-ascii character in the name.  All of removed characters will be listed in the Potential Errors file.

The software will also check whether the TIN is 9 digits and just digits.

You want to electronically file IRS Forms 1095-B with their 1094-B transmittal summary and/or you want to electronically file IRS Forms 1095-C with the 1094-C transmittal summary.  That’s great.

The first step is getting a transmitter control code or TCC number.  Step by step instructions to attaining the TCC number for the IRS AIR System are at this link

ACA Application for Transmitter Control Code (TCC Number)

The TCC number that you attain from the IRS AIR System is different from the TCC number you would attain to electronically file 1098, 1099, 3921, 3922, 5498 forms.  Its a different and a different way of efiling.

Once you have the TCC number, you need to upload one (1) successful test file.  Here is the catch. It can’t be with your data.  The IRS set up 6 test scenarios with fake data.  You have to successfully efile one of those test scenarios to the IRS before efiling your data.

The test scenarios are written out examples.  We converted those examples to excel.  You can import the test excel file into the software, click on “File Information Returns Electronically”, type in your transmitter TCC and contact information, generate the XML files and upload them to the IRS.  We can guide you through this as well.  One successful and you will feel better about the electronic filing experience.  Call technical support at 608-444-6575 anytime and they can guide you through this test filing.

The state of California requires withholding of 7% on payments of $1500 or more to both residents and non-residents of the state.  This form follows the federal tax template used by the IRS for reporting payments and withholding to non-US persons from US sources, regardless whether the recipient would have any tax liability or is a resident.

For purposes of reporting, California non-residents include:

• Individuals
• Businesses that are not registered with the Secretary of State
• Independent Contractors providing services in California
• Trusts and Estates

In addition to contractor services and business proceeds, the withholding requirement also extends to rents, royalties and trust or estate distributions.

The form itself is not complicated to understand, and the payer has the responsibility for the reporting withholding requirement.  The question for most non-residents is how to obtain a refund for the withheld amounts assuming that there is no tax liability.

Non-resident Tax Liability and Forms

This is a burdensome task for many non-residents, who according to the instructions must file a California tax return if they receive Form CA-592.  In addition, failure to file a tax return could result in penalties.  There is an additional form that is only for non-residents, CA-592-B, where withheld amounts are reported.

The California income tax form for non-residents is Form 540NR, and in order to get tax relief you may have to show that you paid tax on the California sourced income in your home state.  For this purpose you would file Schedule S, Other State Tax Credit, with 540NR.  If you qualify, you would get a tax credit on the California return for amounts paid in your home state.

If you don’t live in a state with a reverse credit agreement with California, you will have to complete 540NR along with the deductions and exemptions available, and pay the tax owed.  The availability of a refund will depend on the amount of income sourced in California, and the applicable rate after deductions.  If your home state does not offer a credit for those amounts paid, you will in essence pay double tax for the earned income or distributions.

To avoid the pain of double taxation, there is the remaining option to claim the withheld amounts as a deduction for those who itemize on their Federal tax returns. The taxpayer could then claim any amount refunded by California as income in the following year.  In the event that there is no refund due, then the only tax relief is via the federal deduction.

Employers with more than 50 employees, who provide insurance to their employees must file Form 1095-C and 1094-C.  1095-C details the health coverage for each employee, and 1094-C is the transmittal form to accompany all forms 1095-C sent to the IRS.  These forms correspond to the employer shared responsibility provisions as set out in the Affordable Care Act (ACA).  This mandate will not go into effect until tax year 2015, and as with the other ACA forms are all currently in draft form.

Affordable Coverage and Minimal Essential Value Requirements

The employer shared responsibility provisions of the ACA are designed to encourage employers to offer affordable coverage to their full-time employees.  According to the IRS, there is a test to determine if coverage is ‘affordable’:

If an employee’s share of the premium for employer-provided coverage would cost the employee more than 9.5% of that employee’s annual household income, the coverage is not considered affordable for that employee

The employer must also offer what is termed ‘minimal essential value’ in the coverage that meets certain criteria.  In other words, employers cannot shift the cost of coverage to employees, or offer a bare-bones policy to escape the ACA mandate.

Employer Shared Responsibility

If they fail to offer coverage, and an employee must then purchase coverage in the Health Insurance Marketplace, then the employer may be subject to an Employer Shared Responsibility Payment.  This payment would be due if one full time employee receives a Premium Tax Credit for purchasing coverage on their own.  The Premium Tax Credit is discussed in a previous article.   The employer payment is $2000 for a full calendar year, per employee.

However, there is another threshold to be met by employers.  They must provide affordable insurance to a minimum of 95% of their employees, or they will have to make a payment equal to an amount for all their employees even if some receive coverage.   This stiff payment requirement does have a 30-employee exclusion, so if an employer has 50 employees the payment would be for 20 employees after the exclusion is subtracted.  In effect, this shifts the tax credit from the government to the employer, but it is doubtful that it will be a very effective tool for encouraging businesses to offer coverage.  Interestingly, government employers at all levels are also subject to this payment.

As the ACA was unveiled many large, corporate employers took a look at these provisions and payments, and determined that is was less costly to simply pay the penalties and not offer insurance.  In effect, the employer shared responsibility payment is a subsidy to the government for employees who purchase insurance in the Marketplace, and then receive a tax credit.  One should look for the IRS to change these rules and formulas for employers in the future, as businesses find creative ways to minimize their health care expenses under Obamacare.