Episode 35 -- Second Quarter Form 1099 Roundup

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This week on Information Return Intelligence, we've already reached the end of the second quarter of the year. We're halfway through. And this episode is a roundup of 1099 and other related information that happened in the months of April, May, and June. That's this week on Information Return Intelligence powered by IOFM. My name is Jason Dinison. Welcome to this week's episode. And let's get started. This episode, our focus is on things that happened in the second quarter related to 1099's, 1042S and the W9. So we're going to be talking about the latest version of the W9 that's still in draft status as of the time we're dropping this episode on July 7th. We'll talk about changes to the backup withholding regulations. 2026 update to 1099 NEC and 1099 Miscellaneous have been put out. Iris was quietly updated sometime in the beginning part of the year. I'll admit that I just saw it here in the second quarter, and so we're talking about it this time around. E-Delivery, the Treasury Department is thinking about changing the rules with that. We'll touch briefly on what's called the Quang case, and then we'll close by talking about the IOFM Spring Conference that happened in May. So draft form W nine is where we start. And in the month of May, the IRS released yet another draft of both the form and the instructions. And this is a good update because if you've listened to prior episodes or you're familiar with this at all, the first draft of a new W9, which was released last September, had a big change. And that big change was that sole proprietors, individuals or sole proprietors, would have been prohibited from giving an EIN. That was a bigger deal than you might think. And that has been removed from the latest draft put out last revision was May fifteenth. While the form was revised on May 4th, and the instructions were revised May 15th. The bottom line is in the month of May, that was taken out. Now, one thing to be clear on is this is still just a draft, so we talk about it and it makes an interesting discussion point, but you should keep using the W9 that says March 2024 on it for now, because nothing has actually changed. This is all just stuff that's in draft status at the IRS. But that's a good change that they took that individual EIN restriction out, because that would have been a big hassle for issuers of 1099s. By the way, the related podcast talking about the May revisions to the draft, that's episode 26, if you want to go back and listen to a deeper discussion of all the ins and outs with the W nine and the proposed changes to it. Episode 26, link in the show notes. Also in the second quarter, the Treasury Department released proposed regulations relating to backup withholding. And there's not a whole lot to say on this other than it's basically just a conforming amendment to the regulations. So our 1099 reporting requirement comes from section 6041A, which since 1954 has been six hundred dollars, the reporting threshold. Well, now 2026, the threshold is 2000, and that amount is now indexed for inflation, so it's going to go up each year going forward. And the problem is with backup withholding, backup withholding comes from section 3406 of the code. And the regulations under section 3406 reference $600. They reference a dollar amount rather than the code section. So what the Treasury Department's proposed regs do is they strike $600 and replace it with whatever dollar amount is in effect for the year under section 6041A. So this is just simply a conforming type of change. It is a big deal. I don't want to make it sound like it's not a big deal, but it's just a change to make sure that the backup withholding thresholds will match up with the 1099 reporting threshold because one of the triggers for backup withholding is not having your payee as taxpayer identification number at the time you make a reportable payment. So it's important for that term reportable payment to match up with Section 6041. We talk more about this in episode 31. Also in the second quarter, the IRS released new versions, revised versions of 1099 NEC and 1099 Miscellaneous. And these revisions contain three new boxes. Two boxes relate to qualifying tips, and one box relates to qualifying overtime. We could spend quite a bit of time talking about what that means. I think it's best to just point you to the proper episode where we talk about it a few weeks ago. It was episode 33, where we talk more about these newest versions of the 1099 NEC and 1099 Miscellaneous and what it means. It is something to familiarize yourself with that if you pay tips to a contractor, you will need to dig into what are qualifying tips because you might have a reporting obligation. Overtime is probably going to be a little more rare, but as we discuss in episode 33, in particular with what are called Section 530 employees, you could be reporting overtime on a 1099. That's all we'll say for today. This is intended to be a recap, not a comprehensive dive into all of this stuff. Just a quick update on Iris, and that is that the IRS at some point in the first few months of the year increased the taxpayer portal limit from 100 forms to 250 forms. And as much as I try to stay on top of this stuff just to let you know that this stuff is hard, I didn't see this until just kind of at random in the second quarter. So they did this quietly. But what we mean by that is when we say 100 forms to 250 forms, the taxpayer portal, that's an option for do-it-yourself filing of 1099s with the IRS in the iris system. And the taxpayer portal allows you to upload CSV files to the IRS. And in the past, the limit, the size limit on your file was 100 entries per file. So if you were using the taxpayer portal and you had a thousand forms to file, you need to do 10 different CSV files with 100 entries in them. That's changed now to 250 forms. So that makes it a little more user-friendly for more mid-sized users. If you've always been submitting less than 100 forms, this has never been an issue for you. But if you're doing more than 100 forms, it has been an issue because you either have to do those multiple CSV files or use the other side of Iris, which is called application to application, where things get more difficult. And now let's hear a word from our sponsor, IOFM. If you're a financial operations professional, IOFM is the place for you. IOFM's membership website, IOFM.com, features industry research and best practices, metrics and benchmarking data, policies, case studies, tools, templates, and critical compliance and corporate governance resources. The institute also produces on-demand e-learning resources, including video trainings and web-based seminars, and they host industry leading conferences in the spring and fall. Learn more at IOFM.com. And now back to the show. The Treasury Department has released rules relating to electronic delivery. There's a few things to say on this. So the Treasury Department is reviewing electronic delivery rules. They were seeking public comment. The comment period closed May 23rd, so it was really a springtime thing where they came out with this and were seeking comment through May 23rd. The electronic delivery rules are surprisingly complicated. Even things like just emailing a PDF of a 1099 to someone, I know that that happens all the time, and nobody's worrying about these consent rules that the regulations have in place. But those consent rules are real. They're not hypothetical. They are a part of the regs, and the IRS talks about them at length in publication 1099. So it may be that not very many people are actually worrying about it, but the rules exist. So what the Treasury Department did in the spring is they first came out with proposed regulations that said for issuers of 1099 DA only, they are going to relax the e-delivery rules. They're studying a relaxation of the rules for issuers of 1099 B, B as in boy. And then they wanted public comment by May 23rd on relaxing the rules for all issuers of all forms. I think the key takeaway on this is become familiar with those rules because a lot of people have never heard of this. So I would familiarize yourself with this. Episodes 24 and 25 of this podcast go into more. Episode 24 is about the Treasury Department seeking to ease the e-delivery rules just in general. Episode 25 talks about what are those rules. Then we have the Quang case. Now the Kwang case is a case from the Court of Federal Claims that came out in April, and I'm really, really condensing a discussion of the Quang case here, but basically the Quang case said, according to the Court of Federal Claims, that certain tax-related actions during the time that the COVID disaster declaration was in effect should have all been delayed until July 10th, 2023. Which means that this court ruling opens the door for people who were penalized by the IRS for things like late filing and late payment during the time of COVID, could apply for refunds of the penalties and interest that they paid during that time. So it's a big deal. It's really something that affects individual filers more than this audience here, which is more 1099 filers. But the reason why I brought it up in an earlier podcast is because number one, it's interesting, and number two, it could have some impact on you with issuing 1099s, although not with 1099s themselves. Because unfortunately, the deadlines for issuing information returns such as 1099s are explicitly not pushed back during a disaster declaration. So if you filed your 1099s late during COVID and you got penalized, Quang isn't going to help you. However, it could apply if you had to file forms 945 or 1042 relating to reconciling backup withholding. So the Quang case isn't likely to have a lot of utility for most of us in the 1099 world, but if it works, it works. The other thing is that even if you think it might work for you, or maybe in your personal life, you might be like, hey, I had to pay some penalties to the IRS during COVID. I should investigate that. July 10th is a key deadline, and depending on when you're listening to this, it's either going to be coming up in just a couple days or it's already passed. And if it's already passed, then you're out of luck. You have to submit what's called a protective claim by the 10th of July, and you are not going to get a refund immediately. You might not ever get a refund because the Quang case is going to go through appeals. This is not a done deal. And so it is likely to be several more years before we have an outcome on the Quang case. But July 10th of this year is your deadline for submitting a protective claim. Again, not likely to work for most people with information returns. But if you want more information, check out episode 30 3030 is the episode where we talk more about how the Quang case relates to things like 1099s. And then in the month of May, IOFM held its spring conference in Orlando. And I was there presenting a number of sessions. And it's always great discussion with people who work in this industry and deal with this stuff every single day. And I found that there were three big themes among the people that I talked to. Generalized anxiety. I just got a lot of I won't say bad vibes. It was more just like people were nervous, just in general, about a lot of things. Lots of backlash against complexity. That's always been there, but I felt like it was more of a forward thing where this stuff is just so convoluted that people are they were expressing a lot of frustration with that. And then backlash, if not downright hostility towards artificial intelligence. There was anxiety about AI, but also hostility and backlash towards it. I always say the best part of attending an IOFM conference, the teaching is great, but even better, I always say the best part is hearing from people about what's going on. What are you dealing with? What keeps you up at night? Because that helps me develop as an educator, it helps me develop better content that's more relevant to the audience, whether it's an educational session or the big master guide to 1099s that I edit at IOFM or this podcast. The related episode on the IOFM conference was episode 28. Thanks for watching or listening to this week's episode of Information Return Intelligence. We do this every week where we talk about different things in the 1099 and 1042S and W9 world, etc. etc. This podcast is powered by IOFM. We will talk to you again next week. Dinoson Media Ventures.