According to the IRS, under-reporting of income is the biggest contributing factor to the IRS tax gap–the amount owed by individuals and businesses versus the amount that was actually paid in taxes. In 2006, the most recent year for which data are available, under-reporting across taxpayer categories accounted for an estimated $376 billion of the gross tax gap.
Overall, the IRS found that compliance is highest where there is third-party information reporting (1099 forms used to report taxable income earned that is not considered salary and wages) and/or withholding (W-2 forms). In the case of W-2 forms, the IRS found that a net of only 1% of wage and salary income was misreported; however, amounts subject to little or no information reporting had a 56 percent net misreporting rate in 2006.
In an effort to close that tax gap, the IRS has changed some reporting requirements for 1099s for tax year 2012. Here are some of those key changes:
1. 1099-MISC. Starting in 2012, compensation of $600 or more paid in a calendar year to an H-2A visa agricultural worker who did not give you a valid taxpayer identification number must be reported on 1099-MISC. You must also withhold federal income tax under the backup withholding rules. However, if the worker does furnish a valid taxpayer identification number, then report the payments on Form W-2.
2. 1099-B. New boxes have been added to Form 1099-B for reporting the stock or other symbol (box 1d), quantity sold (box 1e), whether basis is being reported to the IRS (box 6b), and state income tax withheld (boxes 13-15). Other boxes on the form have been moved or renumbered. In addition, brokers must report on Form 1099-B sales of covered securities by an S corporation if the S corporation acquired the covered securities after 2011.
3. 1099-C. The titles for boxes 1, 2, and 6 on Form 1099-C have changed. Box 1 is now Date of Identifiable Event; box 2 is now Amount of Debt Discharged; and box 6 is now Identifiable Event Code, and requires the entry of a code for the identifiable event. See Box 6–Identifiable Event Code. For 2012, all codes are optional except for Code A–Bankruptcy.
4. 1099-DIV. Exempt-interest dividends from a mutual fund or other regulated investment company (RIC) are now reported on Form 1099-DIV and are no longer reported on Form 1099-INT, Interest Income. Also, boxes 12 through 14 have been added to Form 1099-DIV to report state income tax withheld.
5. 1099-INT. Exempt-interest dividends from a mutual fund or other regulated investment company (RIC) are no longer reported on Form 1099-INT. Instead, those amounts are reported on Form 1099-DIV, Dividends and Distributions. In addition, boxes 11 through 13 have been added to Form 1099-INT to report state income tax withheld.
If you need help with 1099s this year, don’t hesitate to give us a ring. We’re happy to help you out.Read More