RCUH Vendor File & IRS Form 1099 Reporting

Requirements October 2013

What’s on the Agenda?

• The What and the Why – Making improvements • Vendor file & vendor records - What’s in it

– Searching the file – A new record may not always be the answer – New processes & forms

• Form W-9 – Why we need it

• The Form 1099-Misc process – How are payment records selected for 1099s? What filters are used? – Vendor records – When having only one is best – What’s reportable, What’s not

• Why is all of this important? 10/17/13 2

What is a Form 1099? What is a W-9?

What is a Form 1099? It is an informational return filed by RCUH and is issued to a vendor and the IRS for certain kinds of payments.

What is a W-9? A W-9 provides a Vendor’s Name, Tax ID Number and Federal Tax Classification to RCUH. This information is needed for Form 1099 reporting.

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IRS Form 1099-Misc

Rents, Royalties, Medical & Healthcare payments, and all Other Income require separate box reporting

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RCUH IRS Audit

• In 2013, the IRS selected RCUH to audit tax year 2010. • The examination included a review of Form 1099-Misc

returns filed by RCUH. • In some instances, RCUH did not meet IRS Sections 3406,

6721 and 6722 requirements. • RCUH needs to improve the completeness and accuracy

of its 1099 reporting process or face future fines & penalties.

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RCUH is requiring a Form W-9 to collect more complete vendor file information required to do proper 1099 reporting.

RCUH did not meet IRS requirements for Form 1099-Misc reporting and needs to make improvements to their process.

Why Are Changes Needed?

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IRS Findings

Total Non-Payroll Expenditures ($) Non-Reportable

Form 1099s Issued ($) Failed to report ($)

RCUH Payments for 2010

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Improving RCUH 1099 reporting begins with Improving the Vendor file data

1. Reduced the number of active vendor records by removing records not used within the past 2 years.

2. In-progress - W-9 forms are being requested from vendors paid in 2013 to collect “missing” tax classifications and TINs.

3. Requirement of the W-9 form will improve the quality of new vendor record data.

4. An upgrade of the software platform for the RCUH website is being planned. This will allow “smarter” forms and increased functionality. Changes to the current system are being limited since they will not carryover.

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Other Related Actions Taken

1. Updated the web RCUH Vendor Registration Form with tax classifications to match the W-9 form.

2. The new VR form enables the user to add the vendor W-9 as an attachment.

3. The “Search” function of the vendor file has been improved to make finding an existing record easier.

4. Have started to educate users on the importance of a vendor record, how payment coding affects 1099 reporting & the important role that users play in the Form 1099 reporting process.

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Search the vendor file first to find an existing Name match

Relocated the Create New Vendor button to be displayed under the SEARCH results

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Improved Display of RCUH Vendor Search Results

Users will see the vendor’s name and address in its entirety

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A new vendor record can be avoided if a temporary address change is a solution

Note change of address on right. It has the same effect of placing a address label over a saved address.

Note the Ukee Street address is the address stored on the vendor record.

Permanent address changes can only be done by emailing rcuhdisb@rcuh.com

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2.670 Change in Vendor Address

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New “Create Vendor” Checklist

Email RCUH for address changes

Goto RCUH 2.670 for instructions

PDF for Foreign Vendor creates

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Updated RCUH Vendor Registration Form, 10/21/13

Users must enter information from the W-9 form to the Registration screen

Users will continue to have the ability to create new records for U.S. vendors. NRA employee vendor records are allowed. RCUH will review the new records being created and may contact you if follow-up with the vendor is required.

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Updated RCUH Vendor Registration Form (2nd half of form)

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Attach the W-9

Users do not have to Attach a W-9 for governmental entities or employees.

RCUH will create new Foreign Vendor records using this Attachment 50. Attachment 51 is a forms-fillable Requisition form.

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The Form W-9 Federal Tax Classification

• “Vendor” is the name of the business or individual in a RCUH vendor record. The vendor’s name is printed on the check.

• The W-9 requires a vendor to provide – The Taxpayer’s name and the Business name (if different) – Tax Identification Number (TIN) – Federal Tax Classification

• The vendor’s name, address, and TIN collected from the W-9 is used on the Form 1099 issued by RCUH.

• The W-9 is a required attachment effective 10/21/13 when a new RCUH vendor record is created for a U.S. vendor.

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• The Tax Identification Number (TIN) on the Form W-9 is

confidential in nature. • The information is to be used solely for the purpose of

creating a vendor record. • Access to the information shall be limited to those who

have a valid business need for the information. • After ensuring that the Form W-9 has been properly

scanned and uploaded, it should be shredded.

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The Form W-9 Important Reminder

An example of a vendor’s W-9

Tax ID Number

Federal Tax Classification

The W-9 attachment will be reviewed and validated by RCUH Disbursing after the vendor record is created.

SSN

EIN

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Which RCUH Payments are required to be reported on a Form 1099?

• Annual payments of $600 or more are selected on a combination of the vendor’s Federal tax classification & the payment code.

• 1099 filing errors or a failure to file may occur when vendor information is missing or if the wrong information is reported or, if the wrong payment code is used.

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Form 1099 Reportable Payment Types

• Payments for rent, including space & equipment rentals • Royalty payments greater than $10 • Prizes & Awards • Study subject payments • Payments for services, consultants, repair & maintenance

services, subcontracts, construction services, catering, transportation, honoraria, etc.

• Payments for legal services to any vendor • Payments for medical services to any vendor • ETC Reference IRS Instructions for Form 1099-Misc

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UH Object Code (OC) & RCUH Budget Category (BC)

are used to select 1099 reportable payments

• The OC and BC type are one criterion for selecting payment records for Form 1099 reporting. The correct code is critical for correct reporting.

• The type of account used on a payment determines whether a OC or BC is used.

Type of Account Object Code Budget Category UH F&P X RCUH Revolving X UH GRS X RCUH Direct X

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Reportable 1099 OC & BC Codes Payment Type Form 1099 Box # UH Object Code RCUH Budget

Category Budget Category Type

Rents

1 3473 5500 to 5705

0016 0018

Q – Rent Equipment T – Rent Space

Royalties ($10)

2 7105 n/a n/a

Prizes and awards

3 7244

n/a n/a

Other income

3

Payments to individuals for participating in a medical research study

3 n/a n/a n/a

Fishing boat proceeds

5 n/a n/a n/a

Medical and health care payments

6 7120 n/a F - Consultants

Services (including parts and materials)

7 3472 5800 to 5871 7100 to 7190 7200 7215 7220 7245 7291 7520 to 7533 7600 to 7651 7900 752A to 763U

0006 0017 0020

F – Consultants R – Repairs & Maint S - Other V – Subcontracts >$25K X – Construction Y – Subcontracts<$25K

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Reportable 1099 OC & BC Codes continued

Payment Type Form 1099 Box #

UH Object Code RCUH Budget Category

Budget Category Type

Nonemployee compensation

7 4141 4241 4341 4441 4471 4541 4571 4821 4841 4871 7100 to 7174 (not including 7105, 7120)

0006 0011 0012

F – Consultants L – Other Travel, Consult M – Other Travel, Foreign, Consultant

Cash payments for fish

7 n/a n/a n/a

Crop insurance proceeds

10 n/a n/a n/a

Attorney payments (gross proceeds)

14 7115 n/a F - Consultants

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Budget Category Type Codes are used to select payment transactions for 1099 reporting

Budget Category Type is displayed on the BSR report preceding the BC column

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Vendor Federal Tax Classifications are an additional criterion for selecting reportable payments

• Classifications that require 1099 reporting – Individual/Sole Proprietor; including a single member LLC – Partnership; including a LLC taxed as a partnership

• Classifications that do not require 1099 reporting – C Corporation*; including a LLC taxed as a C corporation – S Corporation*; including a LLC taxed as a S corporation – Federal, State and other forms of government entities – UH & RCUH employees

*Exception – Payments for legal or medical services to corporations are reportable. 10/17/13 27

Annual payments of $600* to a tax class I/SP or P vendor is reported on a Form 1099

*Royalty threshold is $10

7100 or 0006 for Consultant Services

7120 or BC for Medical Services

PAYMENTS FOR LEGAL OR MEDICAL SERVICES ARE REPORTABLE TO ALL FEDERAL TAX CLASSIFICATION TYPES INCLUDING CORPORATIONS

7115 or BC for Legal Services

7120 or BC for Medical Services

Payments to Corporations >=$600

Payments to Individuals & Sole Proprietors >=$600

Payments to Partnerships >=$600

Payments to Corporations >=$600

Payments to Corporations >=$600

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Selecting 1099 Payments

Samuel Adams is a Sole Proprietor. Samuel Adams’ DBA is Sam’s Masonry. His SSN was reported to RCUH on his W-9.

$5000 RCUH check coded 5815, Repairs & Maintenance, paid to Sam’s Masonry

$600 or more? Report on 1099!!

Federal Tax Classification Payment code

$5000 exceeds the $600 reporting threshold

5815 is a reportable OC

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Multiple Vendor Records for a Single Vendor

• Multiple records for a single vendor pose a problem when the payments need to be reported to the IRS.

• Active duplicate records cannot be deleted from the RCUH vendor file.

• In this situation, a single vendor record per individual or business is ideal.

• If a single vendor has multiple records, the payments have to be manually consolidated in order to accurately record the total sum paid on the Form 1099. – Increases the possible error rate in reporting – Involves additional work, time and effort.

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Multiple Vendor Records for a Single Vendor – May look like Different Vendors

Every vendor record is assigned a vendor code D2360 –Wells, Elizabeth paid $500 H1426 –Wells, Beth paid $800 C3245 – Wells, Liz paid $225

The correct action is one Form 1099 to a single vendor named Elizabeth Wells paid a total of $1525

Multiple payment records to a single vendor have to be manually consolidated to accurately report all RCUH payments on the Form 1099. If one individual is treated like 3 different individuals, only Beth Wells would receive a 1099.

ELIZABETH

BETH

LIZ

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A Budget Category may include both 1099 Reportable & 1099 Non-Reportable payments

Equipment

Supplies

Fee for service payments

Rental fees

Non-reportable payments may be reported to avoid a “failure to report” situation. There is no penalty for over-reporting.

Non-Reportable Reportable

0026, Safety

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Payments that are Excluded from 1099 Reporting

• Purchase of Goods* – Supplies – Equipment – Books

• Payments to Corporations; except that payments for legal or medical services to corporations are reportable

• Payments to Government entities, Federal, State, etc. • Reimbursements to employees; including University of Hawaii

& RCUH employees • ETC. * Goods purchased for recipients receiving Scholarship/Fellowship support are income to the recipient even though a Form 1099 may not be required.

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Non-Reportable 1099 Payments

Payments to Individuals & Sole Proprietors <$600

Payments to Partnerships <$600

7100 or 0006 for Consultant Services

5800 or 0017 for Repair Services

Any Object Code/BC

Any Object Code/BC

Even if a payment to Individuals, S/P & Partnerships may be reportable, the total annual payments must exceed the $600 threshold.

Payments to Employees and Local, State & Federal governmental vendors are not Form 1099 reportable on any payment code.

Payments to Individuals & Sole Proprietors <$600

Payments to Individuals & Sole Proprietors <$600

All Payments to Employees

All Payments to Government, Federal, State

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The important role “YOU” play

ASSIGN VENDOR# OR CREATE NEW VENDOR

CREATE NEW PO

CHANGE ADDRESS TEMPORARILY

MAKE A PAYMENT

CHANGE ADDRESS TEMPORARILY MAIL OR FORWARD

RCUH CHECK

You are an integral part of the Form 1099 process. It begins when you assign a vendor number or create a new vendor record.

START HERE!

VENDOR RECEIVES A FORM 1099

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Recommendations & Tips

• Create a new vendor record only if an existing vendor name cannot be found through a “Search.”

• New vendor creates can be avoided if the temporary address change is a viable solution.

• Avoid entering punctuation marks and blank spaces unless integral to the name. Symbols may affect the vendor search to return results. Examples: MCDONALD not MC_DONALD, AT&T not A T & T.

• Refrain from using OC 7200 & BC 0020 (or OTHER) for Form 1099 reportable payments.

• W-9 Forms – – Make sure the form is complete and not blank. Sometimes vendors only

enter their name. – Make sure that fill-in fields are complete. – Single member LLC organizations are classified as sole proprietors.

• Contact RCUH at rcuhdisb@rcuh.com to update vendor records.

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IRS References

• Form W-9, Request for Taxpayer Identification Number (TIN) and Certification http://www.irs.gov/uac/Form-W-9,-Request-for-Taxpayer-Identification-Number-and-Certification

• Instructions for Form 1099-Misc http://www.irs.gov/pub/irs-pdf/i1099msc.pdf

• IRS Publication 1281, Backup Withholding for Missing and Incorrect Name/TINs (see Q&A #26 & 32) http://www.irs.gov/pub/irs-pdf/p1281.pdf

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Mahalo

Thank you for your attention!

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