1099 Forms

About 1099 Forms

The QI Agreement defines the preparation and submission of forms 1099 as an obligation of the QI. These forms are used to report income received by US persons for each tax year.

The completed form must be reported to the IRS and a copy must be sent to the US person to whom the form refers.
The reporting obligation can be delegated by the QI to its custodian by creating a segregated account for US persons. In this case, the custodian will be responsible for the client’s classification, documentation, taxation and reporting activities.

Unlike the form 1042-s, which can be used for each type of US income, there is a 1099 for each type of US income. The most used by QIs are the 1099-INT, 1099-DIV and 1099-B forms.
Form 945 must also be sent to IRS, in case a backup withholding has been applied.

Form 1099-INT, 1099-DIV and 1099-B: deadlines, extensions and penalties

Forms 1099 must be filled in and sent within the deadline defined by the IRS for each form. According to the instructions given by the IRS Publications:

  • 31 January: deadline for reporting forms 1099-INT and 1099-DIV to the US person
  • February 15: deadline for reporting forms 1099-B to the US person
  • 1 April: deadline for reporting forms 1099-INT, 1099-DIV and 1099-B to IRS

The terms of submission of forms to IRS can be extended for a period of 30 additional days. The extension of the deadline is possible with form 8809, to be sent within the reporting deadline of 1099.

In its publications, IRS informs of possible penalties for failure to report the form or late submission. The penalty for late reporting of the electronic 1042-S to the IRS is provided for in the measure of:

  • $50 for each form submitted within 30 days of the due date;
  • $100 for each form sent 30 days after the due date but before August 1 of the reporting year;
  • $270 for each form submitted after August 1 of the reporting year.

Taxation on 1099

QIs have to collect completed and signed form W9 from their US clients. It is essential that the form is complete with Taxpayer Identification Number (TIN). In cases where the documentation is not valid or does not have a TIN, the QI must apply to the client the Backup Withholding, equal to 24% (previously 28%) on coupons, dividends and gross proceeds of sales.

Differences between forms 1099-INT, 1099-DIV and 1099-B

The main difference between these forms is that each of them is used to declare a particular type of income to the U.S. tax authorities. In particular for all shares held by US persons:

  • Form 1099-B will be used to report sales transactions (Proceeds From Broker or Barter Exchange Transactions):
  • Form 1099-DIV will be used to report dividends received (Dividends and Distributions);
  • Form 1099-INT, will be used to report interest received (Interest Income);

Correction of forms: Amended Form 1099

The QI has to report the 1099 corrective form if at least one of the fields of the form sent to the IRS has changed. The 1099 must be crossed under “Corrected” to indicate that it is a correction form. The field “Void”, will be crossed if a deletion of the same form already reported is needed.

Considerable attention needs to be paid to the amendment activity of the 1099. In some cases, it is necessary to submit several forms to correct a single one. The same attention should be paid to the correction of the electronic forms.

Filling in and reporting of Forms 1099

The QI that has assumed Primary Withholding Responsibility and backup withholding is required to submit to the U.S. tax authorities the 1099 forms of its clients. The reporting can be performed on paper form, only if using the original forms received by mail by IRS. Alternatively reporting can be done electronically, uploading on FIRE the electronic forms. Reported amounts for the Recipient must be divided into the different forms 1099-INT, 1099-DIV, 1099-B depending on the type of income.

Each form 1099 must be completed in electronic and paper format (PDF). The electronic file must be prepared in a text file (.txt) according to the rules defined for each year by the IRS. This file need to be reported to IRS.

Txt File need to follow Publ. 1220 Specifications for Electronic Filing of Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding. This file must be fully completed in all its parts.

In short, there will be three types of records to fill in:

  • “T” records: containing general information about the transmitter. It may be the QI itself or another reporting entity;
  • “A” records: containing information about the Payer. It can be the same QI or another subject;
  • “C” records: containing summary amounts of the “A” records;
  • “F” records: containing summary amounts of the “A” and “B” records.

The paper/pdf forms are essential for internal use within the QI (archive, audit, etc.) and for reporting to recipients (e.g. QI clients who also assume QI status), and must have the same amounts reported in the electronic file.

Software for creating Form 1099

BEST IRS is a software used to produce all the forms for QIs automatically, guiding the user in the correct reporting. Data uploaded in the software is checked, to verify the type of recipient and the type of income.
Then are generated the forms:

  • 1042 and 1042-S in the case of NRA clients and
  • 1099 in the case of US person clients

Inconsistent and missing data are notified to the user for correction.

Usually QIs delegate the production of the 1099 forms to their custodians. The QI that does not assume the Primary Withholding Responsibility and the Backup Withholding, is therefore not required to produce and report this type of form. However, the QI remains responsible for 1099 reporting in the case it fails to have its custodian performed this duty.

The BEST IRS software allows QIs to provide this in a simple and secure way, with the same tool with which it fills out forms 1042-S.

The software is provided in outsourcing mode, with no impact on the IT infrastructure of the QI. With the same Excel file, our clients can automatically produce all forms 1099, 1042 and 1042-S, updated each year according to the latest regulatory changes.

Why choose BEST IRS

  1. The wizard reduces the possibility of errors in the reports
  2. The integrated procedure simplifies the activity
  3. The software allows to reduce the time of reconciliation and forms generation

Useful information on reporting forms 1099

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