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 1099 software > Learning Center > Dictionary

Tax Terms and definitions
 

Below are common tax terms used throughout this website as well as definitions.  Click on a term below to jump to the definition.

Terms

Amended Return
Beneficial Owner
Employer Identification Number
Electronic Filing
File
Filer
Filing Year
Flow-Through Entity
Foreign Person
Gross Income
Individual Taxpayer Identification Number (ITIN)
Information Return
Intermediary
Nonqualified Intermediary (NQI)
Payer
Presumption Rules
Pro-Rata Basis Reporting
Qualified Intermediary (QI)
Qualified Intermediary Employer Identification
Recipient
Replacement File
Service Bureau
Social Security Number (SSN)
Special Character
Taxpayer Identification Number (TIN)
Tax Year
Transmitter
Transmitter Control Code (TCC)
Unknown Recipient
Vendor
Withholding Agent
Withholding Foreign Partnership (WP) or Withholding Foreign trust (WT)

Definitions

Amended Return

An amended return is an information return submitted by the transmitter to amend an information return that was previously submitted to and processed by IRS/IRB, but contained erroneous information.

Beneficial Owner

The beneficial owner of income is, generally, the person who is required under U.S. tax principles to include the income in gross income on a tax return.

Correction

A correction is an information return submitted by the employer/transmitter to correct an information return that was previously submitted to and successfully processed by IRS, but contained erroneous information.

Electronic Filing

Submission of information returns electronically via the Internet.

Employer Identification Number (EIN)

A nine-digit number assigned by IRS for Federal tax reporting purposes.

Employees hours worked

The average number of employee hours worked per business day during a month is figured by dividing the total hours worked during the month by all your employees who are employed in a food or beverage operation by the average number of days in the month that each food or beverage operation at which these employees worked was open for business.

Employer

The organization supplying their information. Use the same name and EIN you used on your Forms W-2 and Forms 941.

Establishment

A large food or beverage establishment that provides food or beverage for consumption on the premises; where tipping is a customary practice; and where there are normally more than 10 employees who work more than 80 hours on a typical business day during the preceding calendar year.

File

For purposes of this Revenue Procedure, a file consists of one Transmitter "T" Record at the beginning of the file, a Withholding Agent “W” Record, followed by the Recipient “Q” Record (s), a Reconciliation “C” Record summarizing the number of preceding “Q” Records and total of preceding money fields. Follow with any additional “W”, “Q”, and “C” Record sequences as needed. The last record on the file will be the End of Transmission "F" Record. Nothing should be reported after the End of Transmission "F" Record.

Filer

Person (may be withholding agent and/or transmitter) submitting information returns to IRS.

Filing Year

The calendar year in which the information returns are being submitted to IRS.

Flow–Through Entity

A flow-through entity is a foreign partnership (other than a withholding foreign partnership) or a foreign simple or grantor trust (other than a withholding foreign trust). For any payments for which a reduced rate of withholding under an income tax treaty is claimed, any entity is considered to be a flow-through entity if it is considered to be fiscally transparent under IRC Section 894 with respect to the payment by an interest holder’s jurisdiction.

Foreign Person

A foreign person includes a nonresident alien individual, a foreign corporation, a foreign partnership, a foreign trust, a foreign estate, and any other person who is not a U.S. person. The term also includes a foreign branch or office of a U.S. financial institution or U.S. clearing organization, if the foreign branch is a Qualified Intermediary. Generally, a payment to a U.S. branch of a foreign institution is a payment to a foreign person.

Gross Income

Gross income includes income from all sources, except certain items expressly excluded by statute. Gross income is the starting point for computing adjusted gross income and taxable income.

Individual Taxpayer Identification Number (ITIN)

A nine-digit number issued by IRS to individuals who are required to have a U.S. taxpayer identification number for tax purposes but are not eligible to obtain a Social Security Number (SSN). ITIN may be used for tax purposes only.

Information Return

The vehicle for withholding agents to submit required tax information about a recipient to IRS. For this Revenue Procedure, it is information about a foreign person’s U.S. source income subject to withholding, and the information return is Form 1042-S.

Intermediary

An intermediary is a person who acts as a custodian, broker, nominee, or otherwise as an agent for another person, regardless of whether that other person is the beneficial owner of the amount paid, a flow-through entity, or another intermediary.

More than 10 employees

An employers is considered to have more than 10 employees on a typical business day during the calendar year if half the sum of: the average number of employee hours worked per business day in the calendar month in which the aggregate gross receipts from food and beverage operations were greatest, plus the average number of employee hours worked per business day in the calendar month in which the total aggregate gross receipts from food and beverage operations were the least, equals more than 80 hours.

Nonqualified Intermediary (NQI)

A Nonqualified Intermediary is a foreign intermediary who is not a U.S. person and is not a Qualified Intermediary.

Payer

A payer is the person for whom the withholding agent acts as a paying agent pursuant to an agreement whereby the withholding agent agrees to withhold and report a payment.

Presumption Rules

The presumption rules are those rules prescribed under Chapter 3 and Chapter 61 of the Internal Revenue Code that a withholding agent must follow to determine the status of a beneficial owner as a U.S. or foreign person when it cannot reliably associate a payment with valid documentation.

Pro-Rata Basis Reporting

If the withholding agent has agreed that an NQI may provide information allocating a payment to its account holders under the provisions of Regulations section 1.1441-1(e) (3) (iv) (D), and the NQI fails to allocate the payment in a withholding rate pool to the specific recipients in the pool, the withholding agent must file a Form 1042-S for each recipient on a pro-rata basis.

Qualified Intermediary (QI)

A Qualified Intermediary is a foreign intermediary who is a party to a withholding agreement with the IRS, in which it agrees to comply with the relevant terms of Chapters 3 and 61 of the Internal Revenue Code and is in a country with approved know-your-customer rules. See Notice 2006-35.

Qualified Intermediary Employer Identification

A nine-digit number assigned by IRS to a QI for Federal tax reporting purposes. A QI-EIN is only to be used when a QI is acting as a qualified intermediary.

Recipient

Person (nonresident alien individual, fiduciary, foreign partnership, foreign corporation, Qualified Intermediary, Withholding Rate Pool, or other foreign entity) who receives payments from a withholding agent as a beneficial owner or as a qualified intermediary acting on behalf of a beneficial owner. A non-qualified intermediary cannot be a recipient.

Replacement File

A replacement file is an information return file sent by the filer at the request of IRS/IRB because of certain errors encountered while processing the filer’s original submission.

Service Bureau

Person or organization with whom the withholding agent has a contract to prepare and/or submit information return files to IRS/IRB. A parent company submitting data for a subsidiary is not considered a service bureau.

Social Security Number (SSN)

A nine-digit number assigned by Social Security Administration to an individual for wage and tax reporting purposes.

Special Character

Any character that is not a numeric, an alpha, or a blank.

Taxpayer Identification Number (TIN)

Refers to either an Employer Identification Number (EIN), Social Security Number (SSN), Individual Taxpayer Identification Number (ITIN), or a Qualified Intermediary Employer Identification Number (QI-EIN).

Tax Year

The year in which payments were made by a withholding agent to a recipient.

Transmitter

Refers to the person or organization submitting file(s) electronically. The transmitter may be the payer, agent of the payer, or withholding agent.

Transmitter Control Code (TCC)

A five-character alpha/numeric number assigned by IRS/IRB to the transmitter prior to filing electronically. An application Form 4419 must be filed with IRS/IRB to receive this number. This number is inserted in the Transmitter "T" Record (field positions 190-194) of the file and must be present before the file can be processed. Transmitter Control Codes assigned to 1042-S filers will always begin with “22”.

Unknown Recipient

For this Revenue Procedure, an unknown recipient is a recipient for whom no documentation has been received by a withholding agent or intermediary or for which documentation received cannot be reliably associated. This includes incomplete documentation. An unknown recipient is always subject to withholding at the maximum applicable rate. No reduction of or exemption from tax may be applied under any circumstances.

Vendor

Vendors include service bureaus that produce information return files on electronic files for withholding agents. Vendors also include companies that provide software for those who wish to produce their own electronic files.

Withholding Agent

Any person, U.S. or foreign, who has control, receipt, or custody of an amount subject to withholding or who can disburse or make payments of an amount subject to withholding. The withholding agent may be an individual, corporation, partnership, trust, association, or any other entity. The term withholding agent also includes, but is not limited to, a qualified intermediary, a nonqualified intermediary, a withholding foreign partnership, a withholding foreign trust, a flow-through entity, a U.S. branch of a foreign insurance company or foreign bank that is treated as a U. S. person, and an authorized foreign agent. A person may be a withholding agent under U.S. law even if there is no requirement to withhold from a payment or even if another person has already withheld the required amount from a payment.

Withholding Foreign Partnership (WP) or Withholding Foreign Trust (WT)

A foreign partnership or trust that has entered into a withholding or agreement with the IRS in which it agrees to assume primary withholding responsibility for all payments that are made to it for its partners, beneficiaries, or owners.

 

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