WHAT IF A PAYEE REFIUSES TO COOPERATE WITH THE PREPERATION OF 1099s

As part of the 1099 process, payees are required to provide their Tax Identification Number which is either their Social Security Number or Corporate ID Number. But what happens if a payee refuses? What do we do then?

Per the IRS, the 1099 still needs to be prepared and sent to the IRS, but with the tax identification Number blank. Then send the payee the following:
(1) A copy of the 1099 that is being sent to the IRS
(2) Form W-9, which is the form that the payee reports their Tax Identification Number to you
(3) A letter, on company letterhead, informing them that (a) The enclosed 1099 is being provided to the IRS,(b) Requesting them to return the enclosed completed orm W-9, (c) The IRS will assess a penalty against them for refusing to provide their tax identification number and (d) 28% will be withheld from all future payments
(4) A return envelope

You need to keep copies of all of this in a file to show the IRS that you did your best effort to get the payee’s Tax Identification number.

The IRS will then assess you a $50 penalty. The penalty can be waived if copies of the above are provided

If you need help in preparing 1099s, please give us a call today at 562-912-4334.

Please note, to comply with IRS regulations, we need to advise that any discussion of federal tax issues in this blog is not intended or written to be used, and cannot be used by you, (i) to avoid any penalties imposed under the Internal Revenue Code or (ii) to promote, market or recommend to another party any transaction or matter addressed herein. For more information please go to http://www.lw.com/docs/irs.pdf

Be prepared to provide 1099s

Form 1099s are the counter part to the W-2s, they are for payments made by all types of business and nonprofit organizations for non payroll payments like interest, dividends or self employment income. There are 16 different types of 1099s and are due to recipients by January 31, 2011 and to the IRS by February 28, 2011. Listings of these are at the bottom of this blog.

One of the more prevalent 1099s is the1099-MISC, which is for Miscellaneous Income. 1099-MISC covers the following:
(1) Royalties or broker payments in lieu of dividends or tax-exempt interest
(2) Services (including parts and materials). If you received less than $600 in the year a 1099 is not required to be provided
(3) Rents
(4) Prizes and awards
(5) Other income payments

Payments to Corporations are exempt except for the following:
(1) Medical and health care payments
(2) Fish purchases for cash. “Fish” means all fish and other forms of aquatic life
(3) Attorneys’ fees
(4) Substitute payments in lieu of dividends or tax-exempt interest
(5) Payments by a federal executive agency for services

YOUR PENSION PLAN - SMALL CHANGES FOR 2011

In 2011, dollar limitations for pension plans and other retirement-related items will either remain unchanged, or the inflation adjustments for 2011 will be small. Check out what to expect in the new year....

• The contribution limit for employees who participate in section 401(k), 403(b), or 457(b) plans, and the federal government's Thrift Savings Plan, remains unchanged, at $16,500.
• The catch-up contribution limit in those plans for those aged 50 and over remains unchanged, at $5,500.
• The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are active participants in an employer-sponsored retirement plan and have modified adjusted gross incomes (AGI) between $56,000 and $66,000, unchanged from 2010.
For married couples filing jointly, in which the spouse who makes the IRA contribution is an active participant in an employer-sponsored retirement plan, the income phase-out range is $90,000 to $110,000, up from $89,000 to $109,000. For an IRA contributor who is not an active participant in an employer-sponsored retirement plan and is married to someone who is an active participant, the deduction is phased out if the couple's income is between $169,000 and $179,000, up from $167,000 and $177,000.
• The AGI phase-out range for taxpayers making contributions to a Roth IRA is $169,000 to 179,000 for married couples filing jointly, up from $167,000 to $177,000 in 2010. For singles and heads of household, the income phase-out range is $107,000 to $122,000, up from $105,000 to $120,000. For a married individual filing a separate return who is an active participant in an employer-sponsored retirement plan, the phase-out range remains $0 to $10,000.
• The AGI limit for the saver's credit (also known as the retirement savings contributions credit) for low- and moderate-income workers is $56,500 for married couples filing jointly, up from $55,500 in 2010; $42,375 for heads of household, up from $41,625; and $28,250 for married individuals filing separately and for singles, up from $27,750.

Questions?
Call us at 562-912-4334 for more information.

Please note, to comply with IRS regulations, we need to advise that any discussion of federal tax issues in this blog is not intended or written to be used, and cannot be used by you, (i) to avoid any penalties imposed under the Internal Revenue Code or (ii) to promote, market or recommend to another party any transaction or matter addressed herein. For more information please go to http://www.lw.com/docs/irs.pdf