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Tax Reconciliation Bill H.R. 4297 Signed into Federal law on May 17, 2006

Bill Requirements. Withhold 3% tax on certain vendor payments made by government entities after December 31, 2010Remit these taxes to the IRS using current tax deposit rulesReport the withholding to the vendors/IRS on form 1099-MISC. Withhold on Vendor Payments. All government entities are require

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Tax Reconciliation Bill H.R. 4297 Signed into Federal law on May 17, 2006

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    1. Tax Reconciliation Bill H.R. 4297 Signed into Federal law on May 17, 2006 3% Federal Mandatory Withholding State Controller’s Division - SFMS Presented by: Trudy Vidal

    2. Bill Requirements Withhold 3% tax on certain vendor payments made by government entities after December 31, 2010 Remit these taxes to the IRS using current tax deposit rules Report the withholding to the vendors/IRS on form 1099-MISC

    3. Withhold on Vendor Payments All government entities are required to withhold Payments made to any person providing any property or services Includes any payment made in connection with voucher or certificate program Includes payments to provide health care/other services NOT based on need or income (we will be discussing exceptions)

    4. Withhold on Vendor Payments – cont Exceptions to Withholding: Payments for interest Payments for real property Payments to tax-exempt entities and foreign governments Payments to intra-governmental entities Payments for classified or confidential contracts

    5. Withhold on Vendor Payments – cont Exceptions to Withholding: Payments made by a political subdivision which pays less than $100m annually of this type payments Payments in connection with public assistance/welfare eligibility determined by income Payments to government employees

    6. Federal Reporting Requirements 1099-MISC required to report payments and withholding Reporting includes Corporations Currently – 6,500 1099-MISC forms issued Estimate – 100,000 1099-MISC forms will be issued

    7. Description of Project Requires modifications to SFMA (Statewide Financial Management Application) to calculate and appropriately withhold/report Requires additional central staff to manage new withholding

    8. Technology - SFMA Modifications to SFMA will be extensive including but not limited to: System Management Profile – 97 screen for 3% withholding amount Systemwide Vendor Profile – 52 screen indicator Comptroller Object Profile – D10 screen withholding will be independent of 1099-MISC indicator

    9. Withholding program currently only withholds for backup withholding and foreign vendor withholding ACH payments currently do not allow any withholding 1099-MISC reporting program TIN Bulk Matching program currently only run once a year Add Electronic remittance to IRS Technology – SFMA continued

    10. Staffing Requirements Increased central staff for ongoing management: Daily deposits reconciled and remitted to IRS Modifications to vendor process Daily TIN Match with IRS to manage accurate information on over 100,000 vendors Provide training/support to vendor community regarding withholding All current vendors will need modifications

    11. Project Schedule Implementation Date = January 1, 2011

    12. Current Status Policy Option Package submitted for 09-11 Biennium One time funding system modifications Ongoing funding 2 FTE Informational mailings and 1099s for about 100,000 vendors Preliminary Review of SFMA for planned modifications Communicate with agencies

    13. What Does This Mean To Agencies If all agency payments are made through SFMA warrants or ACH, we will handle this requirement centrally If agencies make payments with checks through subsystems: Each agency will need to review type of payments made Each agency may need to make system modifications, remit taxes to IRS and file 1099-MISC Forms reporting withholding

    14. Questions?

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