1099 Reporting in Wisconsin

Here are the procedures for reporting 1099-MISC payments in Wisconsin.  The Wisconsin Department of Revenue provides Publication 117 to show you which forms they want, and to what address you mail the forms and the due dates by type of form filed: http://www.revenue.wi.gov/pubs/pb117.pdf     It is not exactly clear what they want, however, I have it in an email (dated January 30, 2012) that if you file your 2011 Form 1099-MISC’s with the IRS, you don’t have to file them with Wisconsin, unless you are remitting Wisconsin withholding with the forms to the Wisconsin Department of Revenue.

All 1099 forms are required to be printed on “red” forms for the Internal Revenue Service, and be accompanied by a summary transmittal Form 1096, also printed in red.  The IRS requires its copy by February 28th.

Payee/recipient copies are supposed to be in the hands of the payees by January 31st.

In order to prepare the forms, you need each payee’s name, address and taxpayer identification number.  The IRS provides form W-9 on which this information can be collected from each payee.  I strongly suggest before making any payments throughout the year to unincorporated payees for services or rents of $600 or more, that you obtain a completed W-9. http://www.irs.gov/pub/irs-pdf/fw9.pdf?portlet=103

The W-9 instructions explain which taxpayer identification number is used for the various forms of business entities.  The most confusing is the single member LLC.  This kind of entity, when a single member “look thru” entity, is treated and reported as a sole proprietorship on the Form W-9, if the LLC is not incorporated.  Read the instructions carefully!  If the LLC is treated as a sole proprietorship, you will need to use the Social Security Number of the LLC owner.  You will not use the LLC number!   The reason for this “glitch” is that the sole member LLC does not file a tax return separate from its owner, and therefore, the payments made to a sole member LLC in the LLC’s identity are not traceable for the IRS taxpayer identification number matching program.

Page 16 on this link to the IRS instructions provides a handy table of the types of payments and dollar thresholds for reporting 1099-MISC payments: http://www.irs.gov/pub/irs-pdf/i1099gi_11.pdf

The biggest question I get asked is what to do when total payments to an unincorporated service vendor include payments for merchandise along with the services provided.  Considering the penalties now in effect for filing an incorrect 1099-MISC, I’d rather err on the side of caution and report the full payment.  In the IRS instructions specific to the 1099-MISC for “nonemployee compensation”, the IRS provides a repair example, saying that the parts are incidental to the repair service, and therefore reportable.  Look at the top right of page 6 on the instructions:  http://www.irs.gov/pub/irs-pdf/i1099msc.pdf

To save cost when purchasing forms, you can photocopy the red printed copies for the recipient.  In that way, you only need purchase the “red” forms.  QuickBooks does not print the form pages; it only prints the data that goes on the Forms 1099 that you need to purchase.

To sum up, you will need to produce:

Form 1096 red transmittal cover form with each group of 1099-MISC to the IRS

Form 1099′s to the individual payees (recipient copy) by January 31st

Keep a copy for yourself, and note the dates mailed.  With the penalties at $500,000 now for failure to file, you need to take this seriously.

Note for owners of rental properties:  Remember that the rule to report 1099-MISC payments was repealed for you.  Per the IRS instructions for 2011 reporting, “The requirement described in the 2011 instructions for persons receiving rental income from real estate to report payments for certain rental property expenses on Form 1099-MISC was repealed by Congress.   You do not have to report those payments on Form 1099-MISC.”

1099-MISC TRAP!

New Federal rules just increased the penalty for FAILURE to file a 1099-MISC form from $50 to $500,000.  That makes Wisconsin’s $25,000 penalty for WRONGLY filing a 1099-MISC in the construction industry seem pale in comparison. 

Here are the details of the new Federal penalties for failure to file a Form 1099-MISC for payments for services in excess of $600 during the calendar, in your trade or business, to unincorporated payees:

A person that fails to file a correct information return by the due date and cannot show reasonable cause may be subject to a penalty. The penalty applies if the person fails to file timely, fails to include all information required to be shown on a return, or includes incorrect information on a return. The penalty also applies if a person files on paper when required to file electronically, reports an incorrect taxpayer identification number (TIN) or fails to report a TIN, or fails to file paper forms that are machine readable. The amount of the penalty is based on when the correct information return is filed. For returns required to be filed on or after January 1, 2011, the penalty is:

(1) $30 per information return for returns filed correctly within 30 days after the due date (by March 30 if the due date is February 28), with a maximum penalty of $250,000 a year ($75,000 for certain small businesses);

(2) $60 per information return for returns filed more than 30 days after the due date but by August 1, with a maximum penalty of $500,000 a year ($200,000 for certain small businesses); and

(3) $100 per information return for returns filed after August 1 or not filed at all, with a maximum penalty of $1,500,000 a year ($500,000 for certain small businesses).

For this purpose, a business is a small business for any calendar year if its average annual gross receipts for the most recent three tax years (or for the period it was in existence, if shorter) ending before the calendar year do not exceed $5,000,000.

Persons who are required to file information returns electronically but who fail to do so (without an approved waiver) are treated as having failed to file the return, and are therefore subject to a penalty of up to $100 per return unless the person shows reasonable cause for the failure. However, they can file up to 250 returns on paper; those returns will not be subject to a penalty for failure to file electronically. The penalty applies separately to original returns and corrected returns.

For each fifth calendar year beginning after 2012, each of the dollar amounts described above is subject to indexing for inflation.