IRS Modifies 1099 Forms & (Re) Introduces 1099-NEC
Sep 01, 2020
The IRS is making some significant changes to the 1099 process. Beginning with the 2020 tax year, a new 1099-NEC form will be used for reporting non employee compensation (NEC) payments. Previously NEC was reported in Box 7 of the 1099-MISC form. These payments will now be reported in Box 1 of the new 1099-NEC form. The 1099-NEC made an appearance in the 1980’s and is now making a comeback to alleviate deadline confusion caused by separate deadlines for Form 1099-MISC that report NEC in box 7 and all other Form 1099-MISC for paper filers and electronic filers. Companies will start reporting on the new Form 1099-NEC in January 2021.
There are several parts of the new 1099-NEC form worth noting:
- Box 1 is where you key in the dollar amount of non employee compensation.
- Box 4 is used for any amount you held back to comply with backup withholding requirements.
- Boxes 5-7 are used to report any state withholding.
In addition, the removal of NEC payments on the 1099-MISC form has resulted in a reordering of information and corresponding boxes. These changes are listed below:
- Box 7 is where you will now key in payer-made direct sales of $5000 or more
- Box 9 is where you will report crop insurance proceeds
- Box 10 is used for gross proceeds to an attorney
- Box 12 is for Section 409A deferrals
- Box 14 is for reporting non qualified deferred compensation income
- Boxes 15, 16, and 17 is where you will report state taxes withheld, the state identification number, and the amount of income earned in the state.
The deadline for both paper and electronic filing of the 1099-NEC form for 2020 is February 1 for both the recipient and the IRS. The 1099-MISC is due to recipients by February 1 while they are due to the IRS by March 1 for paper filing and March 31st for electronic filing.
For up-to-date information on these changes, you can visit the IRS website or connect with us at 419.891.1040.
By: Aaron Gray, Accountant
Categories: Tax Compliance
Processing Delays Within the IRS Generates Balance Due Tax Notices
Aug 28, 2020
The Internal Revenue Service and State tax departments have experienced delays in tax return processing due to the COVID-19 pandemic. A current delay in the processing of payments received is affecting both Individual and Trust income tax filings. Taxpayers across the country have received tax notices from both the IRS and State tax departments that are citing tax amounts due with penalties and interest tacked on even though the taxpayers timely paid the tax amount due with their filings. Situations have occurred where the payment due was electronically withdrawn or check cashed, but the payment has not been applied to the account appropriately. Other situations have occurred that the payment check was received by the taxing agency but not yet cashed. Either way – the tax payments being applied to these accounts have a definite lag time. The lag time, however, was not stopping the tax departments from sending out balance due notices.
On August 21, the IRS posted an update on their website about these notices and that they are suspending future mailings until they have caught up on processing the mail and payments they have received. In addition, they will be providing penalty relief for any dishonored checked that they’ve received from March 1 to July 15 due to the processing delays. While the policy to suspend these future mailing has been put in place, there could still be mailings that were sent out prior to this policy that are still moving through the USPS system.
What Should You Do if You Received One of These Notices?
- Let your tax preparer know if you’ve received one of these notices so they are aware of the situation.
- Make sure you have documentation of the payment that you made. It should equal the balance the notice is showing due before penalties and interest. If this is not the case, your tax preparer can assist with looking into the variance for you.
- If you sent the payment via certified with return receipt, hold onto the receipt records.
- Finally, closer to the due date of the notice unless the IRS has released additional guidance, either the tax preparer with a valid Tax Power of Attorney or the taxpayer should call the tax agency to confirm the payment is finally applied to the account and nothing further is due.
The tax departments are currently inundated with phone calls and their call centers are not able to keep up with the volume. Our advice would be to give time for them to apply the payments and for the departments to clear up their processing delay.
Categories: COVID-19, Other Resources
Interest Payments For On-Time Tax Filers
Aug 19, 2020
Nearly 14 million Americans will receive an interest payment check from the IRS sometime this week. Here’s what you need to know:
What happened?
Due to the recent pandemic, this year’s tax filing deadline was pushed back to July 15 which is considered “disaster-related postponement.” As a result, the IRS, by law, must pay interest calculated from the original April 15 filing deadline to anyone who filed their individual return by the postponed deadline. Please note, businesses do not qualify for an interest payment.
What does this mean for me?
If you met the July 15 tax deadline and either received a refund in the past three months or anticipate receiving a refund, you will be receiving an interest payment! Funds will be directly deposited into the same bank account your tax refund was deposited otherwise you will be receiving a check in the mail. The amount of Interest is paid at rates set by law with the average payment being $18.
What is the taxability of these payments?
You must report the interest as taxable income on your 2020 federal income tax return you will file next year. In January 2021, the IRS will send a Form 1099-INT to anyone who receives interest totaling at least $10.
Next steps?
If you have questions regarding your interest payment check, please contact your William Vaughan Company advisor or contact us at 419.891.1040. We’d be happy to help!
Categories: COVID-19, Tax Planning
Accounting for PPP Loan Proceeds
Jul 20, 2020
Many businesses have received Paycheck Protection Program (PPP) loans and are now asking the question, “How do I account for the proceeds and potential forgiveness related to the PPP loan?”
The legal form of a PPP loan is debt, and regardless of the expectation of forgiveness, following the guidance under ASC 470, Debt will always be an appropriate option. However, the PPP loan does include a forgiveness component, resulting in many businesses wondering if the funds could be recorded as a grant. Currently, U.S. GAAP does not contain specific guidance on how business entities should account for government assistance. The AICPA has suggested that businesses can reference other guidance such as International Accounting Standard (IAS) 20 as an accounting framework for forgivable loans. A not-for-profit entity that received a government grant should apply ASC 958-605.
How does accounting work under both scenarios?
Debt
Balance Sheet
In accordance with ASC 470 Debt, upon receipt of the funds, a liability should be recognized for the full amount and will generally be classified as a long-term liability. Interest should be accrued at 1% beginning on the date the loan was received and continue over the term of the loan.
Income Statement
Any amount that is forgiven and the entity is legally released from its obligation, would be recognized as a gain in the income statement as an extinguishment of debt. This includes any interest which is forgiven.
Cash Flow
Receipt of the loan proceeds and any repayment, the Company would present as financing activities. Any funds that are ultimately forgiven would be disclosed as a noncash finance activity. Interest paid should be presented as a cash outflow from operating activities.
Disclosures
The disclosures in the financial statements, at a minimum, should indicate the accounting treatment, terms of the agreement, and where the loan amounts are recorded in the financial statements, similar to other debt.
Grant
For those entities that are reasonably assured that they will comply with the eligibility and forgiveness criteria for the full loan, grant accounting could be an appropriate option. These entities should consider the guidance under IAS 20.
Balance Sheet
Upon receipt of the forgivable loan, a short-term liability for deferred income should be recognized. As the entity incurs the eligible expenses, the income should be recognized and the liability should be reduced.
Income Statement
In accordance with IAS 20, grant income can be presented as a credit in the income statement either as a reduction to the related expenses or it can be presented in other income.
Cash Flows
Grant proceeds received, that are expected to be forgiven, should be presented as operating activities in the cash flows statement.
Disclosures
The disclosures in the financial statements should indicate the accounting policies applied, such as funds received, amounts included in both deferred income and recognized in income during the period, how deferred amounts will be recognized, and any unfulfilled conditions. The disclosure should also reference where the loan amounts are recorded in the financial statements.
Conclusion
If an entity does not anticipate meeting the PPP eligibility and loan forgiveness criteria, the loan should be accounted for as debt. In certain scenarios, in which the entity is reasonably assured of meeting the loan eligibility and forgiveness criteria for the full loan, it may be appropriate to account for the proceeds as a government grant. Whatever option the entity decides to follow, the financial statement disclosures should be straight-forward and inclusive.
The SBA has indicated it intends to issue additional guidance to help address questions from borrowers and lenders. All entities that received a PPP loan should continue to monitor for any developments which could impact their accounting for the loan. Should you have questions about your specific situation, please contact your William Vaughan Company advisor or reach out to our contributor, Juli Seiwert in our firm’s audit department.
Juli Seiwert, CPA
419.891.1040
Categories: Audit & Accounting, COVID-19
HHS Provider Relief Fund Means A New Dental Distribution
Jul 20, 2020
On July 10, 2020, the U.S. Department of Health and Human Services (HHS) announced dental providers can apply for relief under the Provider Relief Fund. The deadline to apply has been extended to August 28, 2020.
Eligible dentists can receive a reimbursement of 2% of their annual reported patient revenue. Applications are made through the Enhanced Provider Relief Fund Payment Portal.
To be eligible to apply, a dental provider must meet all of the following requirements:
- Must not have received payment from the initial $50 billion Medicare-focused general distribution.
- Must not have received payment from the $15 billion Medicaid and Children’s Health Insurance Program distribution.
- Must have filed a federal income tax return for fiscal years 2017, 2018 or 2019 or be an entity exempt from the requirement to file a federal income tax return and have no beneficial owner that is required to file a federal income tax return (for example, a state-owned hospital or health care clinic).
- Must have provided patient dental care after Jan. 31.
- Must not have permanently ceased providing patient dental care directly or indirectly through included subsidiaries.
- If the applicant is an individual, have gross receipts or sales from providing patient dental care reported on Form 1040, Schedule C, Line 1, excluding income reported on a W-2 as a statutory employee.
Dentists who previously rejected and/or returned payments from the Medicare general distribution or the Medicaid and CHIP distribution are not eligible to apply now.
For HHS terms and conditions; For HHS Dental Distribution FAQs
Categories: COVID-19, Healthcare & Dentistry