Tax information reporting

Tax information reporting in the United States is a requirement for organizations to report wage and non-wage payments made in the course of their trade or business to the Internal Revenue Service (IRS). This area of government reporting and corporate responsibility is continuously growing, carrying with it a large number of regulatory requirements established by the federal government and the states. There are currently more than 30 types of tax information returns required by the federal government, and they provide the primary cross-checking measure the IRS has to verify accuracy of tax returns filed by individual taxpayers.

Information returns

The tax information return most familiar to the greatest number of people is the Form W-2, which reports wages and other forms of compensation paid to employees. There are also many forms used to report non-wage income, and to report transactions that may entitle a taxpayer to take a credit on an individual tax return. These non-wage forms are the Forms 1099 (of which there are 16 types), Forms 1098 (of which there are four types), and Forms 5498 (of which there are three types).
Each information return reports a different type of payment or transaction; some are used for multiple types of transactions. In addition, each information return has its own unique rules on when, what, and the amount to report, making it difficult to track reporting obligations. The complexity that arises in filing large volumes of information returns requires many filers to depend on third party information reporting software.
Form 1099-INT reports interest paid on deposits at financial institutions (and some other types of business interest as well). Form 1099-S reports income from the sale of real estate. Form 1099-R reports payments from pensions, annuities, retirement and profit-sharing plans, IRA accounts, and some forms of insurance. Forms 1099-DIV, 1099-B and 1099-OID report various investment income and transactions. Form 1099-MISC reports a variety of payments including rent, crop insurance proceeds, so-called "golden parachute" payments, royalties, payments for medical treatment, income from fish that are sold for cash, and payments for business services.
Form 1098 reports interest on a mortgage; Form 1098-T reports tuition and other educational expenses; Form 1098-E reports interest on student loans; Form 1098-C reports the value of a vehicle that has been donated to a charitable organization.

State reporting

These are only a few of the federal forms. States have many equivalent forms and reporting requirements. Taken together, these tax information reporting forms touch hundreds of millions of individuals and businesses, and require a large time commitment on the part of businesses, nonprofit organizations, and educational institutions to administer, prepare and file.

Penalties

In its continual effort to enforce the tax laws and identify unreported and under-reported income, the IRS uses tax information returns in electronic cross-matching against income tax returns. Because of this reliance on receiving information returns from the payers of income, the IRS administers a system of assessing monetary penalties, which can be severe, on businesses and other entities that do not file all of the information returns they are required to file, or file the returns with errors that make it more difficult for the IRS to identify the taxpayers who received the income.

Tax gap

An increasing amount of attention, and government enforcement, is being focused on tax information reporting as the United States Congress and the federal administration seek ways to close the "tax gap" of over $300 billion dollars annually that would be collected by the federal government if all income were reported by U.S. individuals and businesses.

Proposed changes

Current proposals to the regulations include tax withholding on payments to independent contractors, a requirement for credit card companies to report to the IRS the gross receipts for businesses that accept their cards, and the elimination of corporate exemption to 1099 reporting.



Informational returns are prepared by third parties (employers, banks, financial institutions, etc.) and report information to both the IRS and taxpayers to help them complete their own tax returns. The forms report the amounts only on a calendar year (January 1 through December 31) basis, regardless of the fiscal year used by the payer or payee for other federal tax purposes. Taxpayers are usually not required to attach informational returns to their own federal income tax returns unless the form shows federal income tax withheld. Many businesses and organizations must file thousands of information returns per year.^{[citation needed]}
The issuance or non-issuance of an informational return is not determinative of the tax treatment required of the payee. For example, some income reported on Form 1099 might be nontaxable and some taxable income might not be reported at all. Each payee-taxpayer is legally responsible for reporting the correct amount of total income on his or her own federal income tax return regardless of whether an informational return was filed or received.

1098 series

• The Form 1098, Mortgage Interest Statement, is used to report interest that a taxpayer has paid on his or her mortgage. Such interest might be tax-deductible as an itemized deduction
• The Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, reports charitable contributions of motor vehicles
• The Form 1098-E, Student Loan Interest Statement, reports interests the taxpayer paid on student loans that might qualify as an adjustment to income
• The form 1098-T, Tuition Statement, reports tuition expenses the taxpayer paid for college tuition that might entitle the taxpayer for an adjustment to income or a tax credit

1099 series

Form 1099 series is used to report various types of income other than wages, salaries, and tips (for which Form W-2 is used instead). Examples of reportable transactions are amounts paid to a non-corporate independent contractor for services (in IRS terminology, such payments are nonemployee compensation). The ubiquity of the form has also led to use of the phrase "1099" to refer to the independent contractors themselves. In 2011 the requirement has been extended by the Small Business Jobs Act of 2010 to payments made by persons who receive income from rental property.
Each payer must complete a Form 1099 for each covered transaction. Four copies are made: one for the payer, one for the payee, one for the IRS, and one for the State Tax Department, if required.^[7] Payers who file 250 or more Form 1099 reports must file all of them electronically with the IRS.^[8] If the fewer than 250 requirement is met, and paper copies are filed, the IRS also requires the payer to submit a copy of Form 1096, which is a summary of information forms being sent to the IRS. The returns must be filed with the IRS by the end of February immediately following the year for which the income items or other proceeds are paid. Copies of the returns must be sent to payees, however, by the end of January. The law provides various dollar amounts under which no Form 1099 reporting requirement is imposed. For some Form 1099s, for example, no filing is required for payees who receive less than $600 from the payer during the applicable year.^[9]
Variants for Form 1099
As of 2011, several versions of Form 1099 are used, depending on the nature of the income transaction:

• 1099-A: acquisition or Abandonment of Secured Property
• 1099-B: Proceeds from Broker and Barter Exchange Transactions
• 1099-C: Cancellation of Debt
• 1099-CAP: Changes in Corporate Control and Capital Structure
• 1099-DIV: Dividends and Distributions
• 1099-G: Government Payments
• 1099-H: Health Insurance Advance Payments
• 1099-INT: Interest Income
• 1099-K: Merchant Card and Third Party Network Payments
• 1099-LTC: Long Term Care Benefits
• 1099-MISC: Miscellaneous Income
• 1099-OID: Original Issue Discount
• 1099-PATR: Taxable Distributions Received From Cooperatives
• 1099-Q: Payment from Qualified Education Programs
• 1099-R: Distributions from Pensions, Annuities, Retirement Plans, IRAs, or Insurance Contracts
• 1099-S: Proceeds from Real Estate Transactions
• 1099-SA: Distributions From an HSA, Archer MSA, or Medicare Advantage MSA
• 1042-S: Foreign Person's U.S. Source Income
• SSA-1099: Social Security Benefit Statement
• SSA-1042S: Social Security Benefit Statement to Nonresident Aliens
• RRB-1099: Payments by the Railroad Retirement Board
• RRB-1099R: Pension and Annuity Income by the Railroad Retirement Board
• RRB-1042S: Payments by the Railroad Retirement Board to Nonresident Aliens

5498 Series

• Form 5498: IRA Contribution Information
• Form 5498-ESA: Coverdell ESA Contribution Information
• Form 5498-SA: HSA, Archer MSA, or Medicare Advantage MSA Information

W series

"W-2" redirects here. For other uses, see W2 (disambiguation).

W-2

The Form W-2, Wage and Tax Statement, is used to report wages paid to employees and the taxes withheld from them. Employers must complete a Form W-2 for each employee to whom they pay a salary, wage, or other compensation as part of the employment relationship. An employer must mail out the Form W-2 to employees on or before January 31. This deadline gives these taxpayers about 2½ months to prepare their returns before the April 15 income tax due date. The form is also used to report FICA taxes to the Social Security Administration. The Form W-2, along with Form W-3, generally must be filed by the employer with the Social Security Administration by the end of February. Relevant amounts on Form W-2 are reported by the Social Security Administration to the Internal Revenue Service. In territories, the W-2 is issued with a two letter code indicating which territory, such as W-2GU for Guam. If corrections are made, it can be done on a W-2c.

W-2G

The Form W-2G, Gambling Winnings, is used to report Gambling Winnings (direct wager only) to the IRS. It is completed when the winnings are over $600.00 in any one session.

W-3

The Form W-3 is a summary page of all W-2 forms issued by the employer. It is only used on paper filing of W-2 information. Like the W-2, the W-3c allows for corrections. W-3SS is used for the W-2 territorial returns.

W-4

The Form W-4 is used by employers to determine the correct amount of tax withholding to deduct from employees' wages. The form is not mailed to the IRS, but rather retained by the employer. Tax withholdings depend on employee's personal situation and ideally should be equal to the annual tax due on the Form 1040. When filling out a Form W-4, an employee calculates the number of Form W-4 allowances he or she will claim, based on his or her expected tax filing situation for the year. For each Form W-4 allowance taken, the amount of money withheld as federal income tax is reduced. No interest is paid on over-withholding, but penalties might be imposed for under-withholding. Alternatively, or in addition, the employee can send quarterly estimated tax payments directly to the IRS (Form 1040-ES). Quarterly estimates might be required if the employee has additional income (e.g. investments or self-employment income) not subject to withholding or insufficiently withheld. There are specialized versions of this form for other types of payment (W-4P for pensions as an example).

W-7

The Form W-7 and related documents are the application for IRS Individual Taxpayer Identification Number (ITIN). This number is used for people in the US legally, but unable to qualify for social security numbers, that have to file tax returns.

W-8 Series

The Form W-8BEN, Certificate of Foreign Status of Beneficial Owner for United States Tax Withholding, is used by foreign persons (including corporations) to certify their non-American status. The form establishes that one is a non-resident alien or foreign corporation, to avoid or reduce tax withholding from U.S. source income, such as rents from U.S. property, interest on U.S. bank deposits or dividends paid by U.S. corporations. The form is not used for U.S. wages and salaries earned by non-resident aliens (in which case Form W-4 is used), or for U.S. freelance (dependent personal services) income (in which case Form 8233 is used). The form requires the foreign person to provide a U.S. Taxpayer Identification Number unless the U.S. income is dividends or interest from actively traded or similar investments. Other W-8 forms handle other international issues.

W-9

The Form W-9, Request for Taxpayer Identification Number and Certification, serves two purposes. First, it is used by third parties to collect identifying information to help file information returns with the IRS.^[10] It requests the name, address, and taxpayer identification information of a taxpayer (in the form of a Social Security Number or Employer Identification Number). The form is never actually sent to the IRS, but is maintained by the person who files the information return for verification purposes. The information on the Form W-9 and the payment made are reported on a Form 1099.^[11] The second purpose is to help the payee avoid backup withholding. The payer must collect withholding taxes on certain reportable payments for the IRS. However, if the payee certifies on the W-9 they are not subject to backup withholding they generally receive the full payment due them from the payer.^[10] This is similar to the withholding exemptions certifications found on Form W-4 for employees.

W-10

The Form W-10, Dependent care provider identification, is a way for day care service providers to provide information to the individual so they can take credits for care of their children. This form is frequently replaced with a freeform statement indicating the Tax ID of the day care or individual and how much is paid.

W-11

The Form W-11, Hiring Incentives to Restore Employment (HIRE) Act Employee Affidavit, is to certify that a new employee was previously unemployed in order to qualify for a tax credit in accordance with the HIRE act.

W-12

The form W-12 is a form for tax preparation professionals to apply for their ID Number. It is being phased out in favor of an electronic application

Other forms

• Form 2553, Election by a Small Business Corporation, is used by small businesses to elect to be taxed as a "Subchapter S - Corporation" (S corporation).
• Form 2555, Foreign Earned Income, is filed by taxpayers who have earned income from sources outside the United States exempt from U.S. income tax. U.S. citizens or resident aliens are taxed on their world-wide income. For those who qualify, however, Form 2555 can be used to exclude foreign earned income up to US$87,600 for 2008, $91,400 for 2009, $91,500 for 2010, and $92,900 for 2011. Also, it can be used to claim a housing exclusion or deduction. A filer cannot exclude or deduct more than their foreign earned income for the tax year.
• Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, is used to request an extension of time to file a federal income tax return for an individual (there is no extension to pay the tax).
• Form 8822, Change of Address, is used to report a change of address to the Internal Revenue Service.
• Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, is used in implementation of the federal government's Work Opportunity Tax Credit program.
• Form 8889, Health Savings Accounts (HSAs), is used by Health Savings Account HSA holders. HSA administrators are required to send HSA account holders and file forms 1099SA and 5498SA with the IRS each year.

Public disclosure

In the United States, tax records are not publicly available, with the exception the Forms 990 for nonprofits which are generally open for public inspection. Selected tax data is released as economic data for research. In other countries such as Norway and Finland, tax records are public information. Tax filings in the U.S. were not private when federal income taxation began in 1861, but controversy led to Congress prohibiting any examination of tax records by 1894. Congress allowed public examination of individual and corporate tax payments only in 1923, but the disclosure was eliminated by 1924. In 1934 the measure was briefly considered again. As of 2010, various experts have advocated that the income and tax payments be released for individuals and corporations to shed further light on tax efficiency and spur reform. These experts have suggested only releasing information which can't be used for identity theft to address privacy concerns.



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