As we enter a new year and with reporting season upon us, there are many things to consider in order to report on your recipients and payees appropriately. With the IRS using technology to identify discrepancies and an overall focus on enforcement, it is critical that organizations consider improvements around data collection and validation, as this paves the way to correctly withhold and report.
In this article, we will be listing some considerations and recommendations in response to errors that we have historically seen during reporting season on Forms 1042, 1042-S, 945, and 1099.
If you want a more comprehensive guide, at the end of this article you can download our free whitepaper filled with tips and tricks to help you during this reporting season!
Form 1042 and Form 1042-S:
- Filers should consider utilizing the IRS data integrity tool or at the very least review filing data to ensure all of the appropriate fields are populated.
- At a minimum, the following fields should be completed: unique form identifier and Boxes 1, 2, 3, 7a, 12a, 12b, 12c, 12d, 12f, 12h, 12i, 13a, 13b, 13c, and 13d. Other fields may be required depending on the nature of the payment.
- From a security perspective, ensure that the tax identification numbers are truncated on recipient copies but not on the IRS copies.
- In Box 12f (country code) if the withholding agent is U.S., then filers must enter US even though this code is not provided on the IRS country code list.
- Review the year on the Form 1042-S to ensure that the correct year is utilized, as the IRS typically releases the next year form type prior to reporting, confusing some filers.
- Review the Form 1042, Section I to ensure that the withholding liability is reported and not the payment amount made to the recipient.
Form 945 and 1099 Common Errors:
Although no official statements have been made to point to, it appears that notices and penalties for Form 1099 reporting are also on the rise. This reporting season Filers must remember:
- To properly conduct all types of Form 1099 reporting, a recipient’s name and tax identification number must be collected.
- Technically speaking if the information is not on file at time of payment, then backup withholding at the rate of 24% should be conducted.
- In the case that the information is provided it is not uncommon that the name and tax identification number provided does not match the IRS filing system.
- Filers can check the recipient’s name and tax identification number through the use of a third-party program or a direct connection with the IRS using the Name/ TIN matching program.
- Where backup withholding is required, the amount of the backup withholding must be documented on the Form 945. This form is sometimes overlooked when it comes to reporting backup withholding.