Myth vs. Reality
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1. State 1099 Reporting
Reality: Check your states 1099 filing requirements. Many states require 1099s to be filed even if there is no state tax withheld.
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2. Black Ink
Reality: Copy A of Form 1099 must be printed in red drop-out ink in order to be properly processed by the IRS.
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3. Health Plans
Reality: Until the IRS issues final guidance for this W-2 reporting requirement, reporting is not mandatory for those employers who filed less than 250 W-2s.
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4. Identity Theft Truncation
Reality: TIN truncation applies to any federal tax-related payee statement unless prohibited by the Internal Revenue Code, regulations, or guidance. TIN truncation is prohibited on Form W-2, but is acceptable on payee statements for Form 1098 series, Form 1099 series, and Form 5498 series. TINs that may be truncated include social security numbers (SSNs), individual taxpayer identification numbers (ITINs), adoption taxpayer identification numbers (ATINs), and employer identification numbers (EINs).
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5. Independent Contractors
Reality: The general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done. An individual is an employee if the employer can control what will be done and how it will be done even if the employer gives the employee freedom of action.
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6. Combined Filing
Reality: Not all states participate in the combined federal/state program, and many states that do participate in the program still require 1099s with state withholding to be sent directly to the state.
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7: E-file Threshold
Reality: Each state can set its own e-file threshold. Check your states requirements to ensure that you are in compliance.
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8: Paper Filing
Reality: A separate Form 1096 is required for each 1099 form type being submitted to IRS on paper. (Example: If filing both 1099-INT and 1099-DIV forms, two 1096 forms would be required.)
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9. Official Forms
Reality: Substitute W-2 and 1099 forms are acceptable for filing as long as they meet the specifications outlined in IRS Publications 1141 and 1179 respectively.
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10. Payments to Corporations
Reality: Generally, payments made to corporations are not reportable on Form 1099-MISC; however, there are exceptions. The following payments made to corporations must be reported on Form 1099-MISC:
Medical and health care payments
Fish purchases for cash
Attorneys fees
Gross proceeds paid to an attorney
Substitute payments in lieu of dividends or tax-exempt interest
Payments by a federal executive agency for services
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