Vendor
User Group Meeting
December 4, 2007
Presenters
OMB/State Procurement Office/Vendor
Registry:
Bev Haman (701) 328-2741
www.nd.gov/spo/connectnd/
1099
Reporting Information Disclaimer
The web sites mentioned in this document may contain links to other locations. These links should be considered referrals only, and should not be taken as an endorsement.
What
We Will Discuss
Payments to Employees
1099 Issues
Foreign Vendors and Forms W-8
Why
Collect W-9 Forms?
Background 00Agency Instructions
Who does this affect?
Notes
From IOMA Conferences
The IRS can charge the State a fine plus the 28% backup withholding amount if we cannot prove a W-9 is on file.
00resume a vendor is 1099 reportable unless proven in writing that it is otherwise.00/font>
Which
W-9 Form to Use?
Domestic (U.S.) Business Application SFN 53656
IRS Form W-9
Substitute W-9 incorporated into agency forms
Sole
Proprietorships
DBA00 can cause mismatches with 1099 reporting - $100 per 1099
Please compare W-9 forms with individuals00names to the business names they use on invoices.
Example
Procedures
for Collecting W-9 Forms
Fax cover sheet
Continue to send email request to spovendor@nd.gov
One-time vendors
Vendor Inquiry role
Sample
Email Request
From: (voucher enterer)
To:
Assume an LLC is taxable
unless they prove otherwise.
Single Membership LLC
Can be a corporation
or a disregarded entity (treat as a sole proprietorship)
1099
Information Web Pages
Withholding
Classes
Box 1 00Rents and leases
Box 2 00Royalties Includes software licenses
Box
3 00Other Income
Informant fees, such as Crime Stoppers are reportable
Prizes and awards
Legal damages
More
Withholding Classes
Box 6 00Medical and healthcare services 00hink broadly.00/font> Check out special medical issues
Box 7 00Nonemployee compensation 00ule of Thumb: Employees should not be getting 109900.00/font>
Class
14 00Gross Proceeds Paid to Attorneys
Grants
and Scholarships
Example
1
In this example, the population of ND benefits from the nursing students, not a specific organization. Report the money in Box 3 on a 1099-MISC.
Example
2
The state agency benefits from the services performed, but the individual is not hired on as an employee. Report the scholarship/honorarium/stipend on Box 7 for nonemployee compensation.
Example
3
Misc.
Topics from IOMA
P-cards: services are reportable. Therefore, the State does not authorize the use of p-cards for paying services, including printing.
Reimbursing
Travel Expenses
00ou do not have to include expenses on a 1099 if travel is required to do the job.00
However, most TRUE independent contractors include their expenses in their contract amounts.
Traveling
Expenses Rule of Thumb
QUESTIONS?
FOREIGN VENDORS AND FORMS W-8
Why
Are Forms W-8 Needed?
Which
W-8 Form to Use?
The W-8ECI is required when the business headquarters are foreign, but they have a plant, store, etc. physically located in the U.S. The business must have a U.S. taxpayer ID to complete this form.
Example
of W-8ECI
Office in Florida
Headquarters and payments in Saskatchewan
More
Forms
Use the W-8IMY for foreign intermediaries, flow-through entities, etc. collecting money for a third party.
Wrap
Up on Foreign Vendors
Ask them if they have a U.S. taxpayer ID.
Proper W-8 form must be completed before payment is made.
Remember:
It does not matter what the dollar amount of the payment is, or whether the payment is for goods or a reimbursement; all foreign vendors need to prove who they are to receive state funds.
QUESTIONS?
1
This link is our main web site
for working with vendors and 109900.
2
3
REMEMBER: A Form W-9 or
acceptable substitute W-9 (approved by Vendor Registry) must reach our
office before any new vendors are set up beginning January 1, 2008.
4
See Fiscal Policy #110 at http://www.nd.gov/fiscal/docs/policies.pdf. Refer to Agency Instructions handout first page explains background. Who does this affect? Every agency, college, and university requesting a new vendor to be set up for purchase orders and vouchers. This includes agencies that have OMB enter their payments in PeopleSoft for them. Vendor Registry will continue to collect W-9 s on existing vendors that are already set up. This new procedure is for NEW vendors only. The agencies have more power to collect the W-9 forms than we do. If these people or companies want to receive state money, it is not unreasonable to request that they prove who they are. Alliance conference in March 2007: 50% of the colleges and state governments attending a workshop on vendor maintenance collected W-9 s up front.5
IOMA 00Institute of Management
and Administration. Whenever I use quotes in this presentation,
the quote came from an IOMA conference or the IRS web site.
6
--The applications are preferred;
they are our forms developed by vendor registry and give more information.
See website http://www.nd.gov/spo/connectnd/forms-for-vendors-payees.html.
Explain that individuals who provide
services such as caregivers, farmers, etc. are not considered 00usinesses00
by us and can use the Individual Non-business form. Save the business
forms for TRUE businesses. If a sole proprietorship has a physical
building or place of business, consider them a business. If they
work out of their homes, we will accept them as Individuals/Non business
for the purpose of applications as long as they are paid under their
own name and not a DBA.
--The IRS W-9 is available at IRS.gov website
--We will help agencies develop their own forms that incorporate the substitute W-9 requirements.
Foreign vendors 00any non U.S.
individual or company 00require an IRS Form W-8, not a W-9.
We will discuss that at the end of our session, however.
7
Many, if not most, sole proprietors like checks made payable to their business name. For reporting to the IRS, however, they often run their business under their own name and/or SSN. We can satisfy both if we are given proper notification.
Mismatches are where IRS cannot
match the name with the taxpayer ID number given on the 1099.
The IRS fine just went up from $50 to $100 per incorrect 1099.
8
If the invoice comes to you in the name of Dakota Stumpjumpers, but John Doe00 name is on line one, this W-9 is still correct.
If the W-9 is returned to you
with an individual00 name, but you cannot match that name to a business
name, try match up the address. If Vendor Registry receives a
W-9 with just John Doe00 name and not the business name, the agency
MUST let VR know the DBA also. Agencies can fax a copy of the
invoice, make note in the Comments section of the fax cover sheet, or
make comment in the email sent to spovendor@nd.gov. Otherwise,
the vendor will be set up as John Doe only.
Sometimes a corporation will give you the legal or parent name on a W-9, but the vendor is set up and paid to a subsidiary name. This is acceptable, but you must notify Vendor Registry what the correct name and address for remitting checks is.
The W-9 states the legal owner
belonging to the TIN 00the payment may be made out differently, just
like with Dakota Stumpjumpers.
9
Please keep the Agency Instructions on hand they have just been revised this past week. Most of your questions should be answered there. Will the fax cover sheet suffice? Do you have any questions about how to actually use this? If the W-9 is illegible or incomplete, it will not be accepted by Vendor Registry. Explain the steps from contacting the payee to faxing the forms to Vendor Registry. We went back to requesting emails in addition show sample. Read the steps as outlined on page 2 of the Agency Instructions. See sample on following screen. Explain one-time vendors and ask if there are questions. Promote the vendor inquiry role that will help eliminate new vendors and W-9 requests if agencies search better. REMIND THEM ABOUT THE BACKGROUND CHECKS REQUIRED FOR THIS ROLE. THAT REQUIREMENT WILL BE WAIVED FOR USERS ALREADY USING VOUCHERS AND OTHER FINANCIAL MODULES.10
The vendor info account will receive
your email request, and our staff will be on the lookout for the W-9
or application forms for the three payees listed. As soon as the
vendors are set up according to the forms, Vendor Registry will reply
to you by email with the vendor numbers. We decided that the email
was necessary in addition to the faxes because:
11
Please check the W-9 or application
when it comes into your office, and compare it with any paperwork or
invoices you have for that individual/company. If you can00
read their writing, we sure won00 be able to read the faxed copy either.
If the remit to address on
the invoice does not match the address on the W-9, PLEASE FAX THE INVOICE
WITH THE W-9 TO Vendor Rregistry. We can set up both addresses,
but we have to be notified to watch for this.
If you see that the address is
anything outside the U.S., do not forward it on to Vendor Registry 00
we will cover the correct foreign vendor form to use later on.
12
13
For definition of a state employee, read the article called 00olicies on paying state employees00on this web site.
Employees at any state college
or university is treated as a regular vendor when paid by a state agency.
Go through some of the explanations,
especially the part about 1099 reportable services and selecting the
right location.
Explain that employees MAY be
independent contractors, but the agencies need to keep documentation
on file to back that claim up. See http://www.nd.gov/spo/connectnd/1099-information/employees-vs-ind-contractor.pdf
for more details.
14
Please read item #1 regarding
travel payments to employees at http://www.nd.gov/spo/connectnd/1099-information/payments-to-employees.pdf.
Account #521060 should not be used on state employee vendors because
it may bypass any taxable meals included in that amount. To see
which agencies are part of Central Payroll, see the listing at http://www.nd.gov/spo/connectnd/manual/payroll-agencies.pdf.
Any payments for services,
honoraria, stipends, etc. to a state employee as defined above must
be paid using a location called 0009900in the voucher.
If such a location does not show up for the employee you need to pay,
contact Vendor Registry at spovendor@nd.gov.
15
Some confusion on this issue. Received this info from Central Payroll.
These account numbers are designed specifically to provide accurate tax reporting.
Since stipends are expense reimbursements,
educational expenses paid to non employees are determined to be reportable
or not according to the IRS Accountable Plan rules 00see their Taxable
Fringe Benefit Guide.
16
17
18
Speaker through IOMA. She used to be an IRS investigator/auditor. Easier explanations than you get through IRS. We will be quoting a lot from their conferences. Renee and I definitely are not experts on 1099 reporting, but we will share information with you as best we can. If you find information to the contrary to what we discuss today, please bring it to our attention. We want to see statements in writing, however not just something a CPA told you.19
20
Quickly walk through the entire 1099 web site. Show them the manual, the guidelines for agencies, and all their drilldowns.
We have only received calls from a couple of agencies so far, so we assume that everyone has read through this manual and knows how to do it, right?
Does anyone have any questions
on the manual? IT IS OKAY TO HAVE ITEMS SHOW UP ON THE MISMATCH
REPORT.
New Items on 1099 website.
If 1099 reportable
payments were made to employees (on their employee vendor) but using
the HOME location rather than the 1099 location, agencies will not be
able to make these corrections themselves. Pull up the screen
for payments to that employee under Update Vchr Line Withholdings and
download to an Excel spreadsheet. Email the spreadsheet to Renee
Walery or Bev Haman and explain what needs to be corrected.
21
Be sure to check out this website
00it was completely revised in November 2007.
22
Just some comments on unusual situations.
Show web pages on prizes and legal damages. Prizes and awards includes raffle winnings 00I wasn00 sure about that.
Be sure to explain the legal damages
and the differences between them.
23
Go through each class on our web
site. Be sure to read about medical services under Box 6 00some
surprising clarifications there.
The quote is from Marianne Couch.
This is why we brought up those payments to employees. When
an employee receives a W-2 and a 1099 from the same employer (State
of ND, not an individual agency), that is a flag for an audit.
24
More on website under Box 14.
See 00urthermore.00/font>
25
26
27
28
Again, if anyone finds statements
to the contrary of what we just covered, please submit written verification
to Vendor Registry, and we will be more than willing to take it under
advisement.
29
You can split out the labor and
parts on separate invoice lines on the voucher, but you do not have
to.
P-cards 00yes, services are
reportable. Therefore, OMB does not authorize the payment of
services by p-card.
30
Quote is from Marianne Couch. Paying speakers to come into your organization or conference: they traditionally have their travel paid by the agencies and not reported. She went on to say, though, that TRUE independent contractors who do consulting work, etc. for a living usually work the travel expenses into their fees.
In fact, the reimbursement of
travel expenses is one of the 20 questions used by the ND Labor Dept.
to determine whether an individual is considered your employee or an
independent contractor.
31
If your organization hires a speaker or consultant and needs to pay the air fare and motel rooms to get him/her here, then that is part of your organization00 expense, and it is not reportable.
If you hire a company such as a partnership to do a job, and it is their choice of how to travel there and how to perform the job, then report any expenses reimbursed as part of their contract.
Speakers usually have to arrive
on a specific date, whereas contractors and consultants call their own
work schedule 00that may be another deciding factor.
32
33
34
INDIVIDUALS AND COMPANIES OUTSIDE THE U.S. NEED TO PROVE WHO THEY ARE TO SELL THEIR GOODS AND SERVICES TO THE STATE OF NORTH DAKOTA.
No foreign corporate exemptions 00foreign corporations are treated the same as foreign individuals.
It also does not matter whether
the foreign payee is receiving funds for commodities, tuition reimbursements,
travel reimbursements, entertainment, etc. They still need to
complete a W-8 form before receiving funds from the State of North Dakota.
35
There are a total of four types
of W-8 forms. If your payee does not fit the descriptions of the
last three, use the W-8BEN 00that will be the most common one.
See our web site http://www.nd.gov/spo/connectnd/forms-for-vendors-payees.html
entitled 00endor Registry Forms00 Click on the link for IRS
Form W-8 to see the four types of forms and instructions.
36
The hard part is finding out this
information from the companies in advance of them completing a form.
37
More descriptions, instructions,
and forms on our website.
38
By 00resence00we mean a sales
office or business office, a factory, a warehouse, etc.
The U.S. TIN is required for the W-8ECI to be completed.
If the vendor answers yes to the
first two questions, they should complete a W-8ECI if possible.
When in doubt 00use the W-8BEN.
39
And that is all the W-8 form does.
It does not infer that there will be reporting or withholding.
In fact, if a W-8 form is not completed by the vendor, that guarantees
that there WILL be 30% backup withholding from their payment.
40
41
