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IRS Reporting Requirements For Payments


Businesses may be required to send notification to the IRS and state tax authorities for payments made in diverse areas. These are usually called "information returns" in which the business discloses to the government the nature of the payment, the amount, and to whom the payment was made.

Generally, these forms are required to be distributed to the recipient of the payments as well as to the government. For IRS purposes, they are usually due on or before February 28 of the year following the year of payment. There may be penalties charged to any business that fails to file these information returns. Some of the most common filings are:

Form 1099 Misc: Payments in excess of $600 per individual for services rendered (such as subcontractors, landlords, other nonemployee compensation).

Form 1098: For payments of mortgage interest in excess of $600 to individuals on loans owed by the business.

Form 1099 DIV: Payments in excess of $10 per recipient for dividends, and stock dividends.

Form 1099 INT: For payments in excess of $10 to recipients of interest income.

Form 8300: Report of cash payments received by a business in excess of $10,000 per transaction or related transactions.

Form W-2: Payments to employees for wages, tips, and other compensation. No dollar limitation.

There are many other possible information returns that may be required for different business activities and business types. However, these are the main ones that tend to impact most average businesses. When in doubt as to the ones required in your business, check with the appropriate professional before the year ends.

A Word On Computerized Systems

With today's explosion of the use of data processing systems, more and more businesses of all sizes are using computerized recordkeeping systems. There are no government restrictions or limitations on these systems as long as they meet the same tests and requirements as manual ones do.

The IRS position is that you must be able to show records that provide the necessary information to determine correct tax liability in a way that the auditors can track. The documentation must show the applications performed, the procedures used in each application, and the controls at hand. In other words, the computerized system must provide an adequate audit trail back to the original source of entry.

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