The W-2 year-end process is burdensome enough. The last thing you need to worry about is back-up withholding from payments made to independent contractors and filing Form 1099-MISC. For its part, the IRS is paying more attention to the Form 1099-MISC process this year.
Here’s what you need to know for the 2012 filing season.
Paying independent contractors
Independent contractors who don’t do business as corporations and who are paid at least $600 in cash must receive Form 1099-MISC by Jan. 31, 2013. Check your records: If contractors didn’t provide you with their Taxpayer Identification Numbers (TINs) prior to payment, their payments were subject to back-up withholding, which is reported on Form 945. Watch out: The IRS recently confirmed in emailed advice that payers who fail to back-up withhold and file Form 945 will be subject to a penalty equal to 5% of the amount of taxes required to be shown on the return per month, up to 25%. (ECC 201224033)
• EXCEPTION FOR ELECTRONIC PAYMENTS: If you paid contractors with a credit card, debit card, gift card or another electronic payment medium (such as PayPal), you don’t need to send them Forms 1099-MISC. Instead, the payment settlement entity (usually the bank that’s contractually obligated to pay the payee) sends them Form 1099-K.
If you file 250 or more Forms 1099-MISC, you must file them electronically through the IRS’ Filing Information Returns Electronically (FIRE) system. If this is the first year you’ll be filing electronically, the IRS is now requiring you to file Form 4419 at least 45 days before the due date of the return(s) to allow the IRS time to process and respond to applications. (Rev. Proc. 2012-30, IRB 2012-33)
The IRS’ TIN truncation pilot program is extended for the 2012 filing season. Under the truncation procedure, the first five digits are replaced with either asterisks or Xs: ***-**-1234 or XXX-XX-1234. Reminder: Payees’ TINs may be truncated on their paper copies only; forms filed with the IRS must contain their full TINs.
Year-end to-do list
Form 1099-MISC may be provided to recipients electronically, if they consent. Don’t overlook these potential recipients:
- Outside accountants and lawyers
- Auto mechanics/service stations that repair company cars
- Plumbers, electricians, painters, carpenters, tech consultants or office cleaners
- Equipment lessors and repair persons
- Office/company car lessors.
• THINK ABOUT INC: The words “Corporation,” “Corp.,” “Incorporated,” or “Inc.” on service providers’ letterheads, business cards or invoices mean they’re corporations, so no 1099-MISC reporting is necessary. Hitch: If “Company” or “LLC” is used, you’re not off the 1099 hook. You must also provide forms to sole proprietorships, partnerships and attorneys who do business as corporations. Bottom line: You can’t go wrong sending out more 1099s than are required, but you set yourself up for penalties by sending out fewer.
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