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Reportable Payees Policy

A determination should be made prior to hiring an individual as to whether that individual should be classified as an employee and added to the agency payroll or paid as a non-employee. Agencies should obtain a copy of Circular E, Employers Tax Guide, and the 20 Common Law Factors Used in Determining Employee Status, from the IRS.

See Also
Employee versus Independent Contractor

Payees may be:

• Individuals (Nonemployees)

• Sole proprietors

• Partnerships

• Medical and Healthcare Corporations (for services rendered)

• Trusts or Estates

Corporations are exempt from receiving Information Returns in most cases. However, medical corporations must receive 1099-MISC Returns for medical and healthcare service payments totaling $600.00 or more during the calendar year. When reporting payments to medical corporations reported on the 1099-MISC, list the corporation as the recipient rather than the individual providing the services.

Taxpayer Identification Number (TIN)
Each taxpayer is required to provide the payer with his/her TIN. Individual payees are to provide their social security numbers (SSN) for Information returns reporting purposes. Sole proprietors may provide either their EIN or SSN. All other taxpayers should provide an EIN. Effective July 1, 1996, non-resident aliens will be provided individual taxpayer identification numbers (ITIN). ITINs can be obtained by filing a for W-7 Application for IRS Individual Taxpayer Identification Number.

Taxpayer Name
This is the name of the individual sole proprietor (legal owner), or organization with whom you are doing business. When producing Information returns, the name of the recipient must match the name associated with the TIN. When payments are to be reported to sole proprietorships, list the individual owner as the recipient on line 1 and list the company name on line 2 of the Information return form.

Payee Address
The mailing address should be the business address for the recipient of the Information return. In some cases, this address will differ from the payment remittance address.

Phone Number
The phone number of a contact person must now be included on the 1099 form.

Obtaining a Taxpayer Identification Number (TIN)
With the implementation of the OSCs DBS/NCAS system, agencies are now required to obtain the vendor's TIN for payment processing.

Agencies should use the IRS Form W-9, Request for Taxpayer Identification Number, or an acceptable Substitute Form W-9 to obtain the vendor's TIN, name, and address, and to certify that the vendor is not subject to backup withholding taxes. In circumstances where the vendor is not subject to Information returns reporting, such as with corporations and governmental entities, the TIN may be obtained verbally over the telephone.

Vendors who refuse to provide their TIN must be contacted by the agency within 15 working days following the receipt of the invoice to obtain the required payment information. At that time, agencies should inform the vendor that their payment will be delayed pending the receipt of the vendor's TIN. Agencies should further explain to the vendors that there are State and Federal statutory reporting requirements which require them to provide their SSN or EIN to all entities with whom they conduct business.

Categories of Information Returns
There are four main categories of information returns:

1. Information returns of persons subject to special provisions of the tax law. For example, returns showing income, deductions, and distributions of:
       - Exempt Organizations
       - S Corporations
       - Partnerships
2. Information returns of employers reporting wages and other payments to employees.
3. Information returns of employee benefit plans.
4. Information returns for payments made to non-employees and transactions with other persons.

Items 2, 3, and 4 above apply to governmental agencies and universities. Returns for reporting wages and other payments and information returns of employee benefit plans are discussed elsewhere. The following are rules and regulations that relate to information returns for payments made to nonemployees and transactions with other persons (item 4 above).

Calendar Year Reporting
Because the State uses a fiscal year basis (July 1 - June 30) for accounting and reporting activity, each reporting entity must develop its own methods for accumulating information for the calendar year period January 1 - December 31. As a general rule, checks written on or before December 31, are included in the calendar year's reportable payment information.

Payment Dollar Limits to be Reported
IRS minimum reportable dollar limits for each type of payment to be reported on Information Returns must be identified. When a reportable payee's reportable payments reach the IRS dollar limits for the payment type, the payee is to receive an Information return.

Example 1: An individual (non-employee) received $50.00 in royalties during the calendar year and $1,000.00 in non employee compensation. The minimum reporting amount for royalties is $10.00. The minimum amount to be reported for non employee compensation is $600.00. The 1099-MISC Return will be completed showing the royalty payment of $50.00 and the non employee compensation total paid of $1,000.00.

Example 2: The individual received $550.00 in rents and $1,200.00 in non-employee compensation. The minimum reportable dollar limit for both rents and non-employee compensation is $600.00. The 1099-MISC Return will be completed showing $1,200.00, non-employee compensation. The rent payments of $550.00 did not meet the $600.00 dollar limit for reporting, and therefore, do not need to be reported.

Identifying All Sources of Payments
Agencies must develop procedures to identify all sources of vendor payments made by a reporting entity, including those made from these sources:

• Agency charge cards (Purchase Charge Card);

• Petty cash funds (individual payees not recorded in DAS or DBS/NCAS);

• Non-state funds (university funds not recorded in DAS or DBS/NCAS);

• Other funds not recorded in DAS or DBS/NCAS;

• Stop payments;

• Voided checks;

• Garnishments for Non-employees;

• Refunds from payee;

• Debt setoff payment reductions; and,

• Backup withholding.