I. Scope - This guideline summarizes Form 1099-MISC (Form 1099) tax reporting requirements.
II. Background The Office of the State Comptroller handles Form 1099 tax reporting for payments made through the Massachusetts Management Accounting and Reporting System (MMARS) with a vendor-specific vendor code. The University is generally responsible for Form 1099 reporting for payments made from a trust fund not captured in MMARS. The University is also generally responsible for tax reporting on payments made on an Invoice Warrant and for payments made on MMARS using a miscellaneous vendor code.
When the University is responsible for Form 1099 reporting, the Controller and Accounts Payable Manager at each campus, and at the President's Office, are responsible for providing properly formatted Form 1099 data to University Information Systems (UIS) in early January. UIS is responsible for creating magnetic media files and accompanying transmittals for the IRS/DOR and paper forms for the payees in late January.
Although the IRS has been considering issuing revised tax reporting requirements for electronic commerce including purchasing cards, current tax law generally requires that purchasing cards follow the regular 1099 reporting requirements. When purchasing card transactions are subject to tax reporting, the University, not the merchant bank, appears to be required to issue the Forms 1099. For example if the University purchasing card is used to purchase services from an unincorporated vendor, such purchases should be reported by the University on Form 1099.
III. Form 1099 Reportable Payments Form 1099 is used to report most non-employee compensation, rents, royalties, and certain other vendor payments. Exceptions to issuing Form 1099 exist for certain types of vendors and for certain types of payments. Exceptions include the following:
Special Rule for Legal Services - Payments made by the University to an attorney in connection with legal services (whether or not the services are performed for the University) must be reported on Form 1099. This requirement applies to payments made to attorneys practicing as corporations.
Special Rule for Medical Services - Payments made by the University to corporations engaged in providing medical and health care services or engaged in billing in respect to providing such services, generally must be reported on Form 1099.
Payments made by the University to independent contractors under an accountable plan for reimbursement of business expenses are generally not reported on Form 1099. In certain cases involving expense reimbursements to foreign persons, the IRS takes that position that such payments need to be reported on Form 1042S.
This is not an all-inclusive list of exceptions to Form 1099 reporting. Other exceptions are less likely to apply. For example, although payments of less than $600 need not be reported (less than $10 in the case of royalties), the University should generally report all payments of less than $600, because the $600 limit appears to apply at the state level. A complete listing of Form 1099 exceptions are contained in Treasury Regulation 1.6041.
IV. Vendor Tax Identification Numbers All Forms 1099 must include payee tax identification numbers (TINs). A TIN is a social security number issued by the Social Security Administration, an Employer Identification Number issued by the IRS, or an Individual Tax Identification Number issued by the IRS. Individual Tax Identification Numbers are generally restricted to certain foreign vendors who are not eligible for social security numbers. Tax identification numbers are generally obtained by having the vendor complete Form W-9. The State Comptroller has directed that "No tax reportable payment should be made without a Form W-9 indicating that the Tax Identification Number is on file." If a reportable payment is made to a vendor without a tax identification number, backup withholding at the rate of 28% should be deducted at the time of payment.
V. Vendor Name and Address All Forms 1099 must include accurate and properly formatted vendor names and addresses. Vendor names and addresses are generally obtained by having the vendor complete Form W-9. The IRS matches Form 1099 vendor names and tax identification numbers to its master file. If the vendor name is not accurate or properly formatted, the University may receive a CP2100 notice from the IRS. The CP2100 notice generally requires that the University obtain a new Form W-9 or begin backup withholding on future payments. One of the common causes of such notices is failure to enter a sole proprietor's business name or DBA name on the second line of the Form 1099 -- with the owner's name going on the first line. Detailed information on proper formats for vendor names is contained in IRS Publication 1281.
VI. Electronic/Fax Forms W-9 - The IRS permits a requester of a Form W-9 to establish an electronic system (including via fax) for payees to submit Forms W-9. The electronic system requires that the requester be reasonably certain that the person sending the Form W-9 is the individual identified on the Form W-9. Examples of how to obtain this type of certainty for a fax system include having the sender's fax number displayed at the top of the fax (printed from the receiving fax machine) or faxing the payee a partially completed Form W-9 and receiving the completed Form W-9 via fax. Once the appropriate fax submission has been made, the faxed Form W-9 is required to be retained by the requester as a substitute for the original.
More information on the subject can be found in the IRS's Instructions for the Requester of Form W-9 which can be obtained on the IRS Web page.
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