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Administrative Procedure 8.867 Administrative Procedure 8.867



Title

Information Reporting on 1099-MISC and Backup Withholding on Payments

Header

Administrative Procedure Chapter 8, Business and Finance
Administrative Procedure AP 8.867, Information Reporting on 1099-MISC and Backup Withholding on Payments
Effective Date:  June 2016
Prior Dates Amended:  December 1993, July 1996    
Responsible Office: Office of the Vice President for Budget and Finance/Chief Financial Officer
Governing Board and/or Executive Policy: EP 1.102, Authority to Manage and Control the Operations of the Campus
Review Date:  August 2018

I. Purpose

To establish guidelines for reporting on IRS Form 1099-MISC information returns and for performing backup withholding, in accordance with sections 6041 and 3406 of the Internal Revenue Code. Information reporting and backup withholding apply to 1099-MISC Reportable Payments (Attachment 1).  Reportability is based upon the type of payment and type of payee, including the payee's residence for tax purposes (U.S. citizen/domestic corporation, resident alien or nonresident alien/foreign corporation). Determination of the payee's residence for tax purposes is obtained from UH Form WH-1 "Statement of Citizenship and Federal Tax Status" (Attachment 2).

II. Definitions

The following definitions are from the Department of Treasury, Internal Revenue Service Publications:

A.  Taxpayer Identification Number (TIN) (Pub. 1281 - Backup Withholding on Missing and Incorrect TINS) - A TIN is either a social security number, an employer identification number, or an individual taxpayer identification number (which is issued by the IRS to a nonresident alien individual who is not otherwise eligible for a Social Security number).  Social security numbers (SSN) have nine digits separated by two hyphens (000-00- 0000), and employer identification numbers (EIN) and individual taxpayer identification numbers (ITIN) have nine digits separated by only one hyphen (00-0000000).

B.  Incorrect TIN (Pub. 1281 - Backup Withholding on Missing and Incorrect TINS) - A TIN/name combination that either does not match or is currently not found on Internal Revenue Service (IRS) or Social Security Administration (SSA) records.  For sole proprietors, the individual owner's name must be reported with either the individual owner's SSN or the business' (dba) EIN.

C.  Missing TIN (Pub. 1281 - Backup Withholding on Missing and Incorrect TINS) - Any TIN that has not been provided or a TIN that has more or less than 9 digits or a mixture of digits and letters.

D.  Backup Withholding (Pub. 1281 - Backup Withholding on Missing and Incorrect NAME/TIN(S)) - A system which the IRS imposes upon payers of certain types of income. Taxes are generally required to be withheld if the payee does not provide a TIN or if the IRS notifies the payer of an incorrect TIN.

E.  Entity Type (IRS Regulation Sections 1.761-1(a) and 301.7701-1(c)) - The form of an organization for tax purposes (e.g. individual, partnership, sole proprietor, government agency, corporation or tax exempt organization).  Different tax requirements apply to a payee based on its entity type.  Form W-9 “Request for Taxpayer Identification Number and Certification” (Attachment 3).

F.  Name Control (Pub. 1281 - Backup Withholding on Missing and Incorrect TINS) - The name provided on the first two name lines of the 1099- MISC information return.  The IRS matches the name and TIN combination on the 1099-MISC against its records to determine whether the TIN provided is correct.

G.  Nonresident Alien (Pub. 515     - Withholding of Tax on Nonresident Aliens and Foreign Entities) - A nonresident alien is an individual who is not a U.S. citizen or resident alien.  This includes a nonresident alien fiduciary.

H.  Resident Alien (Pub. 519 - U.S. Tax Guide for Aliens) - An alien who is a lawful permanent resident of the U.S. or meets the "Substantial Presence Test".  This test is met if the alien is present in the U.S. for more than 31 days during the current calendar year and 183 days during the past three consecutive calendar years.  For actual requirements of the test, see IRS Pub. 519 "U.S. Tax Guide for Aliens".  Resident aliens are taxed in the same manner as U.S. citizens.

III. Administrative Procedure

A.  General Information

    1.  1099-MISC Reportable Payments - The University is required to file returns with the IRS for 1099-MISC Reportable Payments (Attachment 1).  The University must backup withhold on such payments if the payee does not provide a TIN or if the IRS notifies the University that the number provided is incorrect.  Reportability for 1099-MISC returns is based upon the type of payment and type of payee.  The University issues statements to each payee for reportable payments and amounts backup withheld, if any.  Reporting thresholds are for cumulative amounts paid during the calendar year.

    2.  The following payments to non-corporate businesses and non-employees are reportable on the 1099-MISC:

        a.  Gross royalties of $10 or more, or broker payments in lieu of dividends or tax-exempt interest.

        b.  Rent of $600 or more - includes real estate rentals (except if paid to a real estate agent) and lease payments for automobiles and equipment, and pasture rentals.

        c.  Fees for services rendered (including parts and materials), honoraria, commissions, unsubstantiated travel expenses of $600 or more for nonemployees; includes gross proceeds of $600 or more paid to an attorney.

        d.  Prizes and awards (fair market value) and other income payments of $600 or more.

        e.  Medical and health care services of $600 or more, including payments to corporations.

        f.  Fishing boat proceeds from the sale of a catch of $600 or more.

        g.  Commissions paid to a buyer for consumer products offered for resale of $5,000 or more.

        h.  Wages or other compensation of a deceased employee paid to an estate or beneficiary of $600 or more.

NOTE:    This is not an all-inclusive list, just common payments made by the University.

    3.  Reporting on 1099-MISC is also required for the following:

        a.  Federal taxes withheld on payments, due to backup withholding requirements (thresholds do not apply to payment amount, if taxes are backup withheld).

        b.  Forgiveness of debt of $600 or more.

    4.  Payments to the following are not reportable by the University on the 1099-MISC:

        a.  Corporations, except for medical and health care payments in excess of $600.

        b.  IRS section 501 exempt organizations (tax purposes), which are nonprofit groups organized for charitable or mutual benefit purposes and who are generally exempt from income taxation.

        c.  Individuals who receive non-service scholarships, fellowship or traineeship grants for which services were not required (may be taxable to the recipient). Scholarships, fellowship or traineeship grants that are paid for teaching, research or other services as a condition of receiving the grant are considered wages and must be reported on Form W-2, through the State payroll system.  Tax Treatment of Scholarship/Fellowship Payments (Attachment 4).

        d.  Nonresident aliens who are Resident Aliens for tax purposes, receiving non-service scholarship/fellowship payments. (The University uses a Form WH-1 "Statement of Citizenship and Federal Tax Status" (Attachment 2) to obtain the payee's resident status.)

        e.  Independent contractors for business related travel expenses that were substantiated to extent of receipts to the University.

        f.  Faculty interviewees

        g.  Rent to real estate agents

B.  Backup Withholding

The IRS uses taxpayer identification numbers (TIN's) to associate and verify amounts reported by the University with corresponding amounts reported by taxpayers on their tax returns.  In order to ensure that payments are reported to the IRS with the correct TIN, the University is required to backup withhold income tax from reportable payments, at a 28% rate if:

    1.  The payee fails to furnish his TIN to the payer in the manner required or

    2.  The IRS notifies the payer that the TIN furnished by the payee is incorrect.

C.  Responsibilities

    1.  Campus/departments  - For the 1099-MISC reportable type payments (Attachment 1), the payee's TIN, entity type and resident status for tax purposes must be obtained.

        a.  TINs for individuals and nonindividuals (e.g. partnerships, sole proprietors, Limited Liability Company (LLC),S-Corp, C-Corp, medical and health care corporations)should be collected on WH-1 or IRS Form W-9 by the campus/departments.  To the Disbursing Office in the KFS vendor request, subsequent TIN requests will not be required, unless the University is notified by the IRS that the number provided is incorrect.

NOTE: Campus/departments are responsible for obtaining a nonindividual's TIN, by asking the vendor to provide an IRS Form W-9 in all vendor requests in KFS.

        b.  Entity type and payee's residence for tax purposes should be provided on Form WH-1 "Statement of Citizenship and Federal Tax Status" (Attachment 2).

    2.  Disbursing Office

        a.  Information from Form WH-1 "Statement of Citizenship and Federal Tax Status" (Attachment 2) is used to determine the type of payee and whether backup withholding applies.

        b.  If backup withholding applies and if the payee's TIN is not on file or if notice is received from the IRS, 28% of the total payment must be backup withheld at the time of payment.  Amounts backup withheld are deposited with the IRS on a semi- weekly basis.

        c.  1099-MISC information return is issued to the payees and filed with the IRS, on an annual basis.  This information return includes all reportable payments made during the calendar year and amounts backup withheld, if any.

        d.  Due to the current University of Hawaii Kuali Financial System (KFS) limitations, Back up Withholding is not possible.  This means if the U.S. TIN is not provided or refused by the recipient, no payment can be made by the university.  This applies to individuals who are U.S. Citizens or Resident Aliens for tax purposes.

    3.  Guidelines

        a.  Campus/Department Office

            (1)  Prepare the Payment Request (PREQ) and/or Disbursement Voucher (DV) payment request with the proper object symbol and determine whether it is a 1099-MISC Reportable Payment (Attachment 1).

            (2)  For 1099-MISC Reportable Payments, if this is an initial payment to an individual, obtain Form WH-1 "Statement of Citizenship and Federal Tax Status" (Attachment 2) from the payee.  This form is used to determine citizenship and resident status of payee and if needed to obtain applicable forms.  If payee previously completed a Form WH-1 (within a Calendar Year) and if there has not been any change in the information provided, a new Form WH-1 is not required.  If payee is a nonindividual, information could be obtained by searching the KFS vendor master.  If the vendor is not listed in the KFS vendor master, use IRS Form W-9 to obtain the necessary information needed to create the vendor in the system.

        b.  Disbursing Office

            (1)  At the time of payment:

                (a)  Review PREQ and/or Disbursement Vouchers (DV) requests for propriety and completeness. Invoices and receipts must be provided and attached to the payment request. Amounts will only be paid upon receipt of proper documentation.

                (b)  If the required documentation has not been attached to the payment request, the payment will be disapproved.

            (2)  For taxes backup withheld:

                (a)  Deposit taxes backup withheld with the IRS, on a semiweekly basis, in accordance with IRS regulations.

                (b)  At year end, issue a Form 1099-MISC (Attachment 8) to the payees and file with the IRS.

            (3)  Monitor expiration dates of Form W-9. After three consecutive calendar years, a new Form W-9 must be filed with the Disbursing Office.

IV. Delegation of Authority

There is no administrative specific delegation of authority.

V. Contact Information

Disbursing Office, 956-8575, or uhdisb@hawaii.edu, or UH Tax Director
Website:  http://www.fmo.hawaii.edu/payment_reimb/index.html

VI. References

•    26 U.S. Code Section 6041.  Information at Source
•    26 U.S. Code Section 3406. Backup Withholding
•    IRS Publication 1220.  Specifications for Electronic Filing for Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G
•    IRS Regulation Sections 1.761-1(a) and 301.7701-1(c)
•    Pub. 515     - Withholding of Tax on Nonresident Aliens and Foreign Corporations
•    Pub. 519 - U.S. Tax Guide for Aliens
•    Pub. 1281 - Backup Withholding on Missing and Incorrect TINS
•    Link to superseded Executive Policies in old format https://www.hawaii.edu/policy/archives/ep/
•    Link to Administrative Procedures in old format https://www.hawaii.edu/policy/archives/apm/sysap.php

VII. Exhibits and Appendices

Attachment 1:    1099-MISC Reportable Payments

Attachment 2:    WH-1 “Statement of Citizenship and Federal Tax Status”

Attachment 3:    Form W-9 “Request for Taxpayer Identification Number and Certification”

Attachment 4:    Tax Treatment of Scholarship/Fellowship Payments

Attachment 5:    Form 1099-MISC and Instructions

NOTE:  IRS publications and forms can be accessed via: www.irs.gov/forms.  The local IRS office also has supplies of most forms and publications.

Approved

    Signed    
    Kalbert Young    
    June 13, 2016    
    Date    
    Vice President for Budget and Finance/Chief Financial Officer

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