Comply Connect – January 2024 – Issue 7

Form 1099-NEC

The deadline to furnish and file the Form 1099-NEC, Nonemployee Compensation, is January 31, 2024. Remember:

• The IRS does not grant an automatic extension for Form 1099-NEC, like with other Forms 1099.
• The Form 1099-NEC is a single-use form, and it was reintroduced by the IRS in 2020 to help reduce confusion with deadlines while dealing with the Form 1099-MISC. Quick history note: Until the form was reintroduced in 2020, the Form 1099-NEC was last used in 1982!
• You will also need to file Form 1099-NEC if the business withholds federal income tax from a nonemployee’s compensation, regardless of the amount of the payment.

The instructions are available here for your reference.

Forms 1099

Here is a list of some upcoming 1099 reporting obligations and key updates. Note, this is not an expansive list so if you have 1099 reporting obligations outside of those noted below, visit the IRS website for the latest form revisions and instructions.

• Form 1099-MISC (Rev. January 2024):
  • Deadline: You are required to furnish the payee statements by January 31, 2024, and file with the IRS by February 28, 2024, if filing on paper or if filing electronically, by April 1, 2024 (the last day of March falls on a weekend).
• Form 1099-K (Rev. January 2022):
  • Deadline: The Form 1099-K is due to recipients by January 31, 2024. It is due to be filed with the IRS by February 28, 2024, if paper filing, and if filing electronically, it is required to be filed by April 1, 2024 (the last day of March falls on a weekend).
  • Key Updates: In November 2023, the IRS announced that the $600 threshold for payment apps and online marketplaces to report payments on Form 1099-K is delayed for the tax year 2023. For 2023, the current reporting threshold remains in effect at $20,000 or more in qualifying receipts and more than 200 transactions. The IRS is planning to phase in the new thresholds and announced a threshold of $5,000 for tax year 2024, something to keep in mind.
• Form 1099-INT (Rev. January 2024):
  • Deadline: Forms 1099-INT need to be sent to recipients by January 31, 2024, and the filing date to the IRS by mail is February 28, 2024. If you are electronically filing these forms, they are due to the IRS by April 1, 2024 (the last day of March falls on a weekend).
• Form 1099-DIV (Rev. January 2024):
  • Deadline: Forms 1099-DIV need to be sent to recipients by January 31, 2024, and the filing date to the IRS by mail is February 28, 2024. If you are electronically filing these forms, they are due to the IRS by April 1, 2024 (the last day of March falls on a weekend).
• Form 1099-OID (Rev. January 2024):
  • Deadline: Forms 1099-OID need to be sent to recipients by January 31, 2024, and the filing date to the IRS by mail is February 28, 2024. If you are electronically filing these forms, they are due to the IRS by April 1, 2024 (the last day of March falls on a weekend).
    
    

Form 1042-S Data Integrity Tool

The IRS released Issue Number 2024-01 reminding withholding agents that the Form 1042-S Data Integrity Tool is available to assist in improving Form 1042-S compliance. A few things to note:

• The tool is free to use and will perform a quality review of the data before you submit to the IRS.
• Form 1042-S information can be input into the tool in a few different ways, then you will receive a notification when the results are ready to download.
• The withholding agent remains responsible for correcting any errors identified and furnishing and filing Forms 1042-S by the required deadline.
• There is no limit on how many times the tool can be utilized, and the information input into the tool cannot be accessed by the IRS.

Hungary Income Tax Treaty

As a reminder, in July 2022 the United States issued an Announcement that it would be terminating the existing income tax treaty with Hungary. For withholding rate purposes, the termination went into effect on 1/1/2024. This means that residents of Hungary can no longer claim reduced rates of withholding by making a tax treaty claim. It is recommended that you review your recipients to determine any withholding impact.

Instructions for the Requester of Form W-9

The IRS released draft Instructions for the Requester of Form W-9 (Rev. December 2023). A summary of the changes includes:

• Clarification that Line 3a is not applicable for disregarded entities;
• Modification of Line 3b to specify that it is required for partnerships, trusts, or estates to indicate the presence of foreign partners, owners, or beneficiaries only if the entity is a flow-through entity obtaining a new Form W-9 from its partner, owner, or beneficiary;
• Inclusion of broader language regarding the certification of non-foreign status for withholding under chapters 3 and 4, with a note that section 1446 withholding is considered chapter 3 withholding in this context; and
• Updated information on withholding and reporting under sections 1446(a) and (f) from 2023 onwards, accompanied by an updated QI agreement, as previously communicated.

IRS Audits

With the IRS ramping up audits on the 76 largest partnerships using AI technology, the landscape of tax compliance is evolving rapidly. This initiative, part of the IRS’s Large Partnership Compliance program, targets complex structures and tax issues in large partnerships, including hedge funds and real estate investments. While these audits may not specifically focus on information reporting and withholding, we know that like an onion, these things can start to unravel once the audit begins.

During and after the reporting season, seize the opportunity to enhance your information reporting and withholding processes. This phase allows you to gain valuable insights into your challenges and identify areas in need of improvement. The foundation for accurate information reporting and withholding lies in meticulous documentation collection and validation from the outset. Let us guide you towards a smoother and more robust process, ensuring seamless and resilient operations.