Vendor User Group Vendor User Group MeetingMeeting

December 4, 2007

PresentersPresenters

OMB/State Procurement Office/Vendor Registry:

Renee Walery(701) 328-1729

Bev Haman(701) 328-2741

www.nd.gov/spo/connectnd/

1099 Reporting Information 1099 Reporting Information DisclaimerDisclaimer

To ensure compliance with requirements imposed by the IRS, any tax advice contained in this communication (including any hyperlinks) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.

The web sites mentioned in this document may contain links to other locations. These links should be considered referrals only, and should not be taken as an endorsement.

What We Will DiscussWhat We Will DiscussCollection of Forms W-9

Payments to Employees

1099 Issues

Foreign Vendors and Forms W-8

Why Collect W-9 Forms?Why Collect W-9 Forms?OMB Fiscal Policy 110 took effect

August 1, 2007.

Background – Agency Instructions

Who does this affect?

Notes From IOMA Notes From IOMA ConferencesConferencesRULE: If the agency (or State) does not

have the payee’s TIN before or at the time the reportable payment is made, there must be 28% backup withholding.

 The IRS can charge the State a fine plus

the 28% backup withholding amount if we cannot prove a W-9 is on file.

 “Presume a vendor is 1099 reportable

unless proven in writing that it is otherwise.”

Which W-9 Form to Use?Which W-9 Form to Use?Individual, Non-Business

ApplicationSFN 54309

Domestic (U.S.) Business ApplicationSFN 53656

IRS Form W-9

Substitute W-9 incorporated into agency forms

Sole ProprietorshipsSole ProprietorshipsDBA = John Doe doing business as

Dakota Stumpjumpers

DBA’s can cause mismatches with 1099 reporting - $100 per 1099

Please compare W-9 forms with individuals’ names to the business names they use on invoices.

ExampleExample

Procedures for Collecting W-Procedures for Collecting W-9 Forms9 Forms

Refer to Agency Instructions handout

Fax cover sheet

Continue to send email request to spovendor@nd.gov

One-time vendors

Vendor Inquiry role

Sample Email RequestSample Email RequestWhen requesting new vendors,

please use format similar to this:

From: (voucher enterer)

To: spovendor@nd.gov

Subject: New Vendors

I just faxed over forms for:

Jane Doe

Bismarck Upholstery

Institute of Paper Shufflers

What Makes a W-9 What Makes a W-9 Complete?Complete?Name – clearly legibleTaxpayer ID Number (TIN) – can

be a SSN or EINAddress – completeOrganization typeSignature

Incomplete or incorrect bank account information will not be returned – it just won’t be entered.

QUESTIONS?QUESTIONS?

Payments to EmployeesPayments to EmployeesWho is a state employee?

See web page “Using Vendors / Payees in PeopleSoft”: http://www.nd.gov/spo/connectnd/

manual/index-2.html

Payments for reportable servicesEmployees vs Independent

Contractors

Problem Areas Problem Areas Non-employee travel

Stipends to employees

HonorariaSee Fiscal Policy 208

Professionals Not Classified

Educational BenefitsEducational BenefitsEducational assistance for

employees:Excluded from taxable income up to

$5,250 each year.Amounts up to $5,250 are paid in AP

using account #611030.Payments over $5,250 are paid in AP

using account #611035.Agencies need to track these

amounts themselves.

QUESTIONS?QUESTIONS?

1099 ISSUES1099 ISSUES

What We’ve Learned in What We’ve Learned in 20072007

Marianne Couch, Cokala Tax Information Reporting Solutions

Presentations through IOMA

Limited Liability Limited Liability CompaniesCompanies“Generally, taxed as

individuals/sole proprietors or partnerships, not corporations”

Assume an LLC is taxable unless they prove otherwise.

Single Membership LLCCan be a corporation or a

disregarded entity (treat as a sole proprietorship)

1099 Information Web 1099 Information Web PagesPagesDeveloped in 2007 -

http://www.nd.gov/spo/connectnd/1099-information/1099-info-index.html

Updated Maintenance ManualGuidelines for AgenciesReference InfoIndependent Contractors

Withholding ClassesWithholding ClassesSee Explanation of withholding

classes at http://www.nd.gov/spo/connectnd/

1099-information/explanation-of-diff.pdf

Box 1 – Rents and leases

Box 2 – RoyaltiesIncludes software licenses

Box 3 – Other IncomeBox 3 – Other IncomeDeceased employee’s wages

paid to estate or beneficiary

Informant fees, such as Crime Stoppers are reportable

Prizes and awards

Legal damages

More Withholding ClassesMore Withholding ClassesBox 4 – Backup withholding

Box 6 – Medical and healthcare services“Think broadly.”Check out special medical issues

Box 7 – Nonemployee compensation“Rule of Thumb: Employees should

not be getting 1099’s.”

Class 14 – Gross Proceeds Class 14 – Gross Proceeds Paid to AttorneysPaid to Attorneys

Rule of thumb:If attorney/law firm performed

services for your organization, report these payments in Box 7.

If attorney/law firm performed services for someone else (third party), report these payments in Box 14.

Grants and ScholarshipsGrants and ScholarshipsAccording to Marianne Couch:

1. Loan Forgiveness Grants – loans are forgiven if specific requirement is done.

2. The free money to the individual is reportable, but how?

Deciding factor: who benefited from the services or specific requirement?

3. The term “scholarship” should not be used if the individual is not an enrolled college student.

Example 1Example 1

Nursing loans become state grants if nursing students stay in ND to work.

In this example, the population of ND benefits from the nursing students, not a specific organization. Report the money in Box 3 on a 1099-MISC.

Example 2Example 2A state agency gives grant or

scholarship money if an individual performs work for them as a nonemployee.

The state agency benefits from the services performed, but the individual is not hired on as an employee. Report the scholarship/honorarium/stipend on Box 7 for nonemployee compensation.

Example 3Example 3A state agency gives scholarships to

summer workers. If the worker comes back to that agency for employment, the money is free. If they don’t, the scholarship becomes a loan that is to be paid back.If the agency requires that their summer

scholarship recipients come back as employees, then the grant or scholarship is reportable on a W-2. Since this money is often given out before hiring, it should be reported as back wages or an advance.

Misc. Topics from IOMAMisc. Topics from IOMA

Combination payments: repair labor plus parts – report the whole amount.

P-cards: services are reportable. Therefore, the State does not authorize the use of p-cards for paying services, including printing.

Reimbursing Travel Reimbursing Travel ExpensesExpensesIndependent contractor expenses

– see IRS Publication 463.

“You do not have to include expenses on a 1099 if travel is required to do the job.”

However, most TRUE independent contractors include their expenses in their contract amounts.

Traveling Expenses Rule of Traveling Expenses Rule of ThumbThumbWere the expenses incurred for

your organization’s benefit, or the Independent Contractor’s?If your agency hires a

speaker/consultant and pays the air fare and motel rooms, it is not reportable.

If you hire a company to do a job and it is their choice of how to travel there and how to perform the job, then report any reimbursed expenses as part of their contract.

QUESTIONS?QUESTIONS?

FOREIGN VENDORS FOREIGN VENDORS AND FORMS W-8AND FORMS W-8

Why Are Forms W-8 Why Are Forms W-8 Needed?Needed?IRS clamping down on tracking

foreign payees“Know your customer” 30% backup withholding required

if no W-8 No corporate exemptions for

foreign corporations

Which W-8 Form to Use?Which W-8 Form to Use?Most will complete the W-8BEN.

The W-8ECI is required when the business headquarters are foreign, but they have a plant, store, etc. physically located in the U.S. The business must have a U.S. taxpayer ID to complete this form.

Example of W-8ECIExample of W-8ECISchulte USA, Inc.

Office in Florida

Headquarters and payments in Saskatchewan

More FormsMore FormsUse the W-8EXP for foreign

governments, foreign banks, and foreign tax-exempt organizations.

Use the W-8IMY for foreign intermediaries, flow-through entities, etc. collecting money for a third party.

Wrap Up on Foreign Wrap Up on Foreign VendorsVendorsAsk them if they have a presence

in the U.S.

Ask them if they have a U.S. taxpayer ID.

Proper W-8 form must be completed before payment is made.

Remember:Remember:

It does not matter what the dollar amount of the payment is, or whether the payment is for goods or a reimbursement; all foreign vendors need to prove who they are to receive state funds.

QUESTIONS?QUESTIONS?