Comptroller Fiscal Year Memo Letter Head


M E M O R A N D U M

To:Legislative Leadership, Judicial Branch Administrators, Elected Officials, Secretariats, Department Heads and Chief Fiscal Officers
From:Martin J. Benison, Comptroller
Date:December 21, 2010
Re:Issuing and Filing IRS Forms 1099 for Tax Year 2010Comptroller Memo
FY#2011-13

Executive Summary

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, 1099G, 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:

  1. Returned Vendor checks in tax year 2010

    The deadline for depositing returned vendor checks into the department sweep account is December 27, 2010. Any timely deposits should have the appropriate transaction (ER or CR) processed by January 3, 2011 to correctly report vendor payments on the Form 1099 for tax year 2010. 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 2010. The department will then be responsible to submit a Form 1099 correction request. 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 2010, FY 2011 check returns- After the check is deposited into 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 be processed (CEC or GAEC).
  • Tax Year 2010, FY 2010 check returns- After the check is deposited into the sweep account, the department must determine the 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 return/post 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.
  • All CRs and ERs must be processed by January 3, 2011.

* When a CR is processed for a returned vendor payment, the department will need to contact CTR in order to correct the 1099 issued from MMARS. 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 2011.

  1. In the event that a Form 1099 issued from MMARS requires a correction, the department must take the following steps:
    • Submit a letter, signed by a department authorized signatory, to the Tax Clearinghouse at CTR stating the reason for the correction and that the amount 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.
  2. For tax year 2010 we will issue Forms 1099 as indicated below:
  • 1099 G will report a minimum amount of $600.00
  • 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 the transactions that comprise the 1099 tax reportable amounts. Reportable transactions and selection dates for Forms 1099 G, 1099 MISC, 1099 INT and 1099S are as follows:

MMARS Transaction Code

From Date

To Date

ER

1/5/2010

1/3/2011

CR

1/5/2010

1/3/2011

EX

1/5/2010

1/3/2011

DC

1/5/2010

1/3/2011

EA

1/1/2010

12/31/2010

AD

12/30/2009

12/29/2010

EFT

12/30/2009

12/29/2010

IT

12/30/2009

12/29/2010

WR

12/31/2009

12/30/2010

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 a 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 fewer tax documents in paper form, CTR must receive these paper forms by February 2, 2011. For those departments issuing more than 10 tax documents, filing must be via electronic file. CTR must receive the electronic file by February 18, 2011.

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 Form W-9 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 been notified 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 Forms 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 2010 (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 Form 1099 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 IRS/IRB between November 1, 2010, and February 15, 2011. While a test file is only required for the first year when a filer applies to participate in the Program, this office sends a test file every year.

  • If approved by CTR, a department may file their Forms 1099 or Forms W-2 payments to the IRS and 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 Forms 1099 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.

FORM 1099 G



Reportable Payees:

Reportable Payment:

Individuals (non-employees) Sole Proprietorships, Partnerships, Trusts

Taxable Grants

FORM 1099MISC



Reportable Payees:

Reportable Payment:

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

Corporations

Legal Service, Medical & Health Care Payments

FORM 1099S



Reportable Payees:

Reportable Payment:

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



Reportable Payees:

Reportable Payment:

Individuals (non-employees) Sole Proprietorships, Partnerships, Trusts

Interest Payments

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. Departments may also accept W-7 Application for IRS Individual Taxpayer Identification Number (ITIN) for individuals who are required for U.S tax purposes to have U.S taxpayer ID number but who do not have and are not eligible to get a social security number (SSN). For more information please refer to the 2010 Instructions for Form W-7 posted on the IRS web page.

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));
  • Dividends;
  • Rents;
  • Royalties;
  • Premiums;
  • Annuities;
  • 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.

  1. If the income is sourced or earned outside of the United States, it is not subject to U.S. tax withholding.
  2. 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 "2010 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.

ccMMARS Liaisons
Payroll Directors
:General Counsels
Internal Distribution