|To:||Legislative Leadership, Judicial Branch Administrators, Elected Officials, Secretariats, Department Heads and Chief Fiscal Officers|
|From:||Martin J. Benison, Comptroller|
|Date:||December 18, 2008|
|Re:||Issuing and Filing IRS Forms 1099 For Tax Year 2008||Comptroller Memo|
This memo confirms the actions that will occur for Federal Income Tax reporting to the Internal Revenue Service (IRS), Social Security Administration (SSA) and for State Income Tax reporting to the Department of Revenue (DOR) for all 1099 reportable payments made from MMARS. This also serves as a reminder to departments that the Office of the Comptroller (CTR) is the Commonwealth's Tax Clearinghouse.
Please make sure the information in this memo is conveyed to relevant staff in your department.
The purpose of this memorandum is twofold:
- To remind departments that the Office of the Comptroller (CTR) is the official Commonwealth Clearinghouse for all matters for tax identification number 04-6002284 related to Federal Income Tax reporting to the Internal Revenue Service (IRS), Social Security Administration (SSA) and State Income Tax reporting to the Department of Revenue (DOR).
- To provide technical guidance to departments regarding their responsibilities pertaining to issuing and filing tax reporting information that is not captured at the detail level in the Massachusetts Management Accounting and Reporting System (MMARS).
Tax-form types, 1099 MISC, 1099INT and/or 1099S, will be issued for each reportable entity if there is a reportable payment in MMARS.
Processing reminders for departments:
- Returned Vendor checks in tax year 2008
Departments that possess returned vendor checks need to deposit them into their sweep accounts by December 29, 2008 and process the appropriate transaction (ER or CR) by January 2 nd 2009 to correctly report vendor payments on the Form 1099 for tax year 2008. If the returned check is not deposited into the sweep account or the transaction is not processed by the deadline, the vendor payment will be included in the Form 1099 for tax year 2008. The department will then be responsible to submit a Form 1099 correction request.
Note: Please notify CTR if your department is still holding any MMARS issued checks after December 29, 2008 for tax reportable payments in calendar year 2008 (i.e. returned mail). Corrected 1099 forms will need to be issued to these vendors. CTR will work with your department to ensure appropriate tax reporting of these payments.
- Tax Year 2008, FY 2009 check returns- After the check is deposited in the sweep account, the department must enter a two-line Expenditure Refund (ER) transaction to reduce the sweep account and put the funds back into the appropriation. After the ER is in final, the appropriate contract back out transaction needs to processed (CEC or GAEC).
- Tax Year 2008, FY 2008 check returns- After the check is deposited in the sweep account, the department must determine account type.
- For budgetary appropriations (1CS, 1CN, 1RS, 1RN, 1IN) process a two-line Cash Receipt (CR* see note below) transaction to reduce the sweep account and enter revenue to the general fund.
- For capital, trust or federal appropriations, the department must enter a two-line Expenditure Refund (ER) transaction to reduce the sweep account and put the funds back into the appropriation.
- In all cases the CR and ER must be processed by January 2, 2009.
* When a CR is processed for a returned vendor payment, the department will need to contact CTR. The 1099 issued from MMARS will need to be corrected. CRs currently do not update the 1099 vendor information in MMARS, since vendor code is not captured on the CR transaction. CTR is currently working on a solution to address this issue for tax year 2009.
- In the event that a Form 1099 issued from MMARS requires a correction, the department must take the following steps:
- Submit a letter to CTR, signed by a department authorized signatory, to the Tax Clearinghouse stating the reason for the correction and confirm that the amount requested to be corrected is accurate.
- Attach a copy of the form 1099 that will require a correction.
CTR will then issue the corrected form 1099.
- For tax year 2008 we will issue 1099 forms as indicated below:
- 1099 MISC will report a minimum combined amount of $600.00 or more for boxes 1, 3, 6, 7 and 14.
- 1099 INT will report a minimum combined amount of $10.00 or more.
- 1099S will report any amount.
To be consistent in our replies to vendors' questions, we are providing a table with the selection dates for each transaction that comprises the 1099 tax reportable amounts. Reportable transactions and selection dates for forms 1099 MISC, 1099 INT and 1099S are as follows:
MMARS Transaction Code
The balance of this memo does not pertain to your department if you process all payments through MMARS and use vendor-specific VCUST codes on all payment request transactions and your department pays all employees using HR/CMS or e*mpac.
I. Forms 1099
When a department makes a reportable payment to a reportable payee and does not use a MMARS vendor-specific vendor code, the department is responsible for issuing the appropriate federal income tax form directly to the payee, with copies sent to the Comptroller's Tax Clearinghouse for filing to the IRS. Situations which may require a department to issue tax-reporting information for payments to non-employees on Form 1099, include:
- Payments made on an Invoice Warrant or summary transaction GX9;
- Payment requests processed through MMARS using a miscellaneous vendor code;
- Payments made from an advance (RA), and recorded on a MMARS Expenditure of Advance (EA), using a miscellaneous vendor code or a program vendor code.
For those departments issuing 10 or less tax documents in paper form, CTR must receive these paper forms by February 1, 2009. For those departments issuing more than 10 tax documents, filing must be via electronic file. CTR must receive the electronic file by February 20, 2009.
II. Commonwealth of Massachusetts Tax Identification Number (TIN)
The Tax Identification Number of the Commonwealth (04-6002284) must always be associated with the name "Commonwealth of Massachusetts". Certain departments have incorrectly changed the name of the Commonwealth by inserting their name when reporting taxes. This has caused a mismatch with the IRS. All tax forms or letters referencing the Commonwealth's TIN must be copied to the Comptroller when issued. Fax copies are accepted, please use 617.973.2500.
III. Payee Tax Identification Number
All tax documents must include the payee TIN. No tax reportable payment should be made without a W-9 form confirming that the TIN is on file. (Form W-9 - Commonwealth of Massachusetts - Request for Verification of Taxation Reporting Information). IRS regulations require backup withholding of 28%, at the time a payment is issued, for any tax reportable payment made for which the payer has no TIN on file or has notice through the B-Notice process that an incorrect TIN is on file.
IV. Tax Form Filing
The IRS recognizes the Office of the Comptroller as the clearinghouse for all W-2 and 1099 reporting when the Commonwealth of Massachusetts tax identification number (TIN) 04-6002284 is used. Departments issuing Forms W-2 and/or 1099 must file directly with CTR who will in turn file with the IRS, DOR and SSA as appropriate. CTR, on behalf of the Commonwealth, is required to file information returns electronically (FIRE). Departments issuing W-2 and/or 1099 must submit an electronic file to CTR. CTR will convert to electronic file any paper returns to avoid the IRS penalties for each return not submitted electronically.
In accordance with IRS Publication 1220 for Tax Year 2008 (Specification for Filing Forms 1098, 1099, 5498, and W-2G), the Commonwealth of Massachusetts is participating in the Combined Federal/State Filing Program. Participation in the Combined Federal/State Filing Program eliminates the requirement to file certain types of Form 1099 to DOR.
Eight types of forms may be filed under the Combined Federal/State Filing Program. They are: 1099MISC, 1099INT, 1099R, 1099G, 5498, 1099DIV, 1099OID, 1099PATR.
Forms 1099B, which are not part of the Combined Federal/State Filing Program, will still need to be filed electronically to DOR. Forms 1099S must be reported to the IRS but need not be filed with DOR.
The Combined Federal/State Filing (CF/SF) Program was established to simplify information returns. To request approval to participate, an electronic test file coded for this program must be submitted to the Internal Revenue Service, Enterprise Computing Center - Martinsburg (IRS/ECC-MTB) between November 1, 2008, and February 15, 2009. While a test file is only required for the first year when a filer applies to participate in the Program, it is highly recommended that a test be sent every year.
- If approved by CTR, a department may file their Forms 1099 or Forms W-2 payments to the IRS or SSA electronically. The department must submit a Summary Report (using the CTR supplied template) of the total records filed by form type, box number and dollars reported, to CTR. Departments should do this only after IRS , SSA or DOR acknowledges receipt of their electronic file. The file name assigned by the IRS, SSA or DOR and the transmission date must also be included on the Summary Report.
- When a department files 1099 forms electronically, please enter your MMARS Department Code on the payee "B" record in the Payer's Office Code at field positions 41, 42 and 43. This will allow our office to follow up with the appropriate department if there are any IRS questions.
- Those using campus or other non-state funds and are making tax reportable payments are required to use their own TIN and not the Commonwealth TIN (04-6002284). Departments should file these tax forms (1099, W-2, 1042-S, 1098T) directly to IRS, SSA and DOR, as appropriate, and not through the Commonwealth's Tax Clearinghouse at CTR.
V. Reportable Payees and Payments
The following are the criteria used by the Office of the Comptroller for determining reportable payees and reportable payments.
Individuals (non-employees), Sole Proprietorships, Partnerships, Trusts
Rents (office space and equipment rentals), Medical and Health Care Payments, Non Employee Compensation (independent contractors), other income - teacher incentives
Legal Service, Medical & Health Care Payments
Individuals (non-employees), Sole Proprietorships, Corporations, Partnerships, Trusts
Proceeds from real estate transactions, to report the sale or exchange of real estate
FORM 1099 INT
Individuals (non-employees) Sole Proprietorships, Partnerships, Trusts
Reportable object codes are identified in MMARS in the Object Code table, searchable by page code, OBJ, in the section labeled "General Options" in the fields, "1099 Income Code and Income Type" and in the Commonwealth's Expenditure Classification Handbook.
VI. Form 1042-S
Before making a payment to a foreign person, the Commonwealth must obtain the appropriate IRS form W-8 from the IRS series: W-8 BEN, W-8 ECI, W-8-EXP and W8-IMY.
Foreign persons are subject to U.S. tax at a 30% rate on income they receive from U.S. sources that consists of:
- Interest (including certain original issue discount (OID));
- Compensation for services performed;
- Substitute payments in a securities lending transaction; or
- Other fixed or determinable annual or periodical gains, profits or income.
If applicable, a foreign person can claim a reduced rate of an exemption from withholding as a resident of a foreign country with which the United States has an income treaty.
If a department payer fails to obtain a form W-8 and fails to withhold when withholding is required, the payer may be assessed the tax that should have been withheld at 30% as well as interest and penalties for lack of compliance.
Generally there are two ways to determine when a payment is not subject to withholding when paid to a foreign person.
- If the income is sourced or earned outside of the United States it is not subject to U.S. tax withholding.
- If the payment is for goods or material and no services are performed, it is not subject to withholding tax.
For year end tax reporting complete Form 1042-S to report income subject to withholding paid to nonresident aliens, foreign partnerships, foreign corporations, or nonresident alien or foreign fiduciaries of estates or trusts.
VII. Contacts and References
Any questions concerning the contents of this memorandum should be directed to Michael Weld Eyob, Office of the Comptroller, (617) 973-2310. General filing information for all form types can be found in the 2008 General Instructions For Forms 1099, 1098, 5498 and W-2G on pages Gen 16, Gen, 17 and Gen 18 which is referenced in IRS Publication 1220. http://www.irs.gov/pub/irs-pdf/p1220.pdf.