IRS FIRE File Types

There are four types of files that you submit to the IRS FIRE; a test, original, replacement and amended or corrected file.
Test
Testing season lasts from November 1 to February 15.  You are not required to submit a test file, but testing is a great way to get some experience with the electronic filing process for information returns.
Original
An original file is an information return that has never been reported.
Replacement
If you file something and it comes back as BAD, then log into the IRS FIRE System and at the Main Menu, you can check the File Status as follows:

1. Click on "Check File Status".
2. Enter your TCC.
3. Enter you EIN.
4. Click "Search".

Click on the file that is BAD to reveal the errors associated with that file. Correct those errors and submit a replacement file. Continue filing a "replacement" file until it comes back as GOOD and do so within the deadline due dates.  When you are electronically submitting a replacement file, you have the option to select which file you want to replace.


Correction
If you file something and it comes back as GOOD, then the file has been processed.  Let's say later you discover that some of the records contained erroneous data.  You may have
transmitted a missing or incorrect TIN, payee name or address, the amounts or amount codes may have been wrong or other common errors. Then you need to submit a corrected file which contains just the records that need to be amended. If you filed 400 1099-MISC records and found out later that 25 of those records contained erroneous data, then you need to put together a corrected file of just those 25 records and submit.
If your corrected file is BAD, correct the file and resubmit as a replacement, not another correction.
File Status
If the file status indicates:
"Not yet processed".  Then you just need to wait and check back in a few days.  Typically, a file will be reviewed within 1-2 days, but as deadlines approach, the IRS FIRE system tends to get bogged down and there may be delays in processing a file.  Some files such as the 8955-SSA or IRS Form 8027 take up to 5-7 days to process.
If the file status indicates "Good, Not Released" and you agree with the "Count of Payees", then you are finished with this file. The file with be automatically released after 10 calendar days.
"Good, Released". Then the file has been released to the IRS for processing.

IRS 1099-MISC Form For Contract Workers

Contract workers, or freelancers, are workers who are hired on a project-by-project basis.  The IRS 1099-MISC form is used by employers to document the earnings of contract workers.

More and more businesses are hiring contract workers because their costs are generally lower than W-2 employee costs.
This is because contract workers' earnings do not require deductions of social security, income and state tax, unemployment, health insurance, or any other type of deferred compensation.  Contractors are required to calculate any tax deductions and pay any taxes owed to the IRS on their own.
At the end of the tax year, the 1099-MISC form is sent by employers to any contractors hired during the year, and it is also submitted to the IRS for income tracking purposes.
Some examples of workers that would receive a 1099 form at the end of the tax year include freelance writers, artists, contract IT specialists, temporary laborers, and more.
Form 1099-MISC is a 5 page form where Copy A is sent to the IRS, Copy B is given to the payee or recipient and Copy C is retained by the filer or payer.  Copy A has the look and feel of  a normal sheet of paper while the other copies are almost like tissue paper. The 5-pages are connected together by a perforated edge.


The IRS requires that Copy A be submitted on their special paper with red ink if you are submitting less than 250 filings a year.  Otherwise, the IRS encourages you to submit electronically. Filing Information Returns electronically is very cost-effective, is easier than filing on paper, and is more accurate. Filing status is available within 2 business days for Forms 1098, 1099 and W2-G and electronic filers receive a later due date for most returns. When you file electronically, you are exempt from using pre-printed forms.  You can just print the Copy B on plain paper with black ink, email a PDF file to all recipients, fax Copy B to the recipients or just print it out and hand it to the recipient.
The 1099-MISC form is the most popular form to report contract worker earnings.  The other variations of the 1099 form are used to show interest and other types of earnings.

About IRS forms 5498, 5498-ESA and 5498-SA

IRS Form 5498 reports IRA contributions.  For those who participate in an individual retirement account, the account's trustee or issuer must report your contributions to the IRS on an annual basis.  You will receive a 5498 for each Traditional IRA or Roth IRA in which you made contributions. Form 5498 is not required by the IRA account holder to be used for his or her tax returns.


Some of the types of contributions that would be shown include: IRA contributions and year end Fair Market Values made to a traditional IRA, Roth IRA, SEP-IRA, or SIMPLE IRA account, any type of conversions made to these accounts, contributions that have been recharacterized from one IRA type to another, and more.
IRA account holders who made contributions to an IRA, performed a 60-day rollover of funds from one plan to another, converted to a Roth IRA, or did a recharacterization should receive a 5498 form.
IRS Form 5498-ESA reports Coverdell Education Savings Account (ESA) Contributions.

IRS Form 5498-SA reports contributions made to an Archer Medical Savings Account(s). 

Unlike the 1099's which are due in the beginning of the year, 5498 Forms are due in the summer.  Copy B of Form 5498 and Form 5498-SA should be mailed by the end of May.  Form 5498-ESA needs to be distributed to the beneficiary by late April.  All of the 5498 forms need to be paper or electronically filed with the IRS by the end May.
You can request an automatic 30-day time extension online through the IRS FIRE System.
5498 software at the site 1099fire.com software creates files in the format required by the IRS for electronic transmission. The system is updated each year to reflect the format changes that are made by the IRS.
Filing Information Returns electronically is very cost-effective, is easier than filing on paper, and is more accurate. Filing status is available within 2 business days for Forms 1098, 1099, 5498 and W2-G and electronic filers receive a later due date for most returns.
When you file electronically, you are exempt from using pre-printed forms.  You can just print the return in regular paper or email a PDF file to all recipients.
 

How can I file for an extension of time for my information returns?

You can request more time to file any information return.  Its easy to do and you will automatically receive an additional one month time extension.

Its important to remember that you can attain an automatic 30-day extension for filing Copy A by paper or electronically with the IRS (or SSA if you are filing Form W-2).  This extension option does not give you additional time to distribute Copy B to the payees. You can not request additional time for distributing Copy B.
The steps are below:

1. Log into the IRS FIRE System.  Click on Continue to reach the main menu.
2. At the main menu, click on "Extension of Time Request".
3. You will see four (4) options.  Click on "Fill-In Extension Form".
4. Click Continue.
5. You will see a form that asks various questions.  You select how the information returns will be filed, whether by paper or electronically.  You select which types of returns you are requesting more time to file.  The return types include W-2, 1098/1099/W-2G, 5498, 5498-SA, 5498-ESA, 1042-S and 8027.

While the W-2 is filed with SSA, you can select a time extension through the IRS FIRE System.
You also type in the payer TIN, name, address, city, state, zip code, contact name, phone number and transmitter control code (if applicable).  If you dont have a TCC number, you can leave that box blank.  You also select whether this payer address is in a foreign country.  If you select no (which is the default), then the payer resides in the United States.
Click Submit and a 30-day time extension will automatically be granted.
The FIRE (Filing Information Returns Electronically) system is set up for financial institutions and others to file Information Return Forms 1042-S, 1098, 1099, 5498, 8027 or W-2G. An Information Return is a tax document used to report certain types of payments made by financial institutions and others who make payments as a part of their trade or business as required by Internal Revenue Code regulations.
Filing Information Returns electronically is very cost-effective, is easier than filing on paper, and is more accurate. Filing status is available within 2 business days for Forms 1098, 1099 and W2-G and electronic filers receive a later due date for most returns.

Printable 1099 and W-2 Tax Forms

You can download any 1099 tax form from the IRS website.  This first page of the form goes out of the way to say
"Do not file copy A downloaded from this website. The official printed version of this IRS form is scannable, but the online version of it, printed from this website, is not.  A penalty may be imposed for filing forms that can't be scanned."

There are a few key points to take from this paragraph:
1. Copy A is a red-ink form. It is a special red-ink.  If you try to print Copy A with store bought red-ink, its not the same type of red-ink that the IRS uses to print out the 1099 forms. The IRS is asking you to not print Copy A and try to submit because store-bought red-ink forms will not scan correctly.
2. You can print Copy B or C to plain paper with black ink.  Copy B and C is the payee and payer copies.  You don't even have to print and mail Copy B to the recipient.  You can convert to PDF and email or just print it out and hand the form to the recipient.

Form W-2 is different.  While Form W-2 is developed by the IRS, you paper or electronically file with the Social Security Administration (SSA).  SSA developed substitute Copy A forms for the W-2.  Software developers will receive a PDF of the substitute W-2, W-3, W-2C and W-3C forms in June or July.  Then can build those substitute forms into their software application and then mail the forms to SSA for review.  SSA will test to see if the forms will align with their scanners.  If they do, then that software developer will receive a letter of approval letting them know that their substitute forms can be read by SSA scanner equipment.  You receive on letter of approval for the W-2, W-3 forms and another for the W-2C, W-3C forms.
An employer can print Copy A of a substitute Form W-2 on plain paper with black ink.  Its a great feature and service offered by SSA.

Form W-2: Box 12 code

Box 12 of Form W-2 shows a code followed by a value.  The code indicates the type of payment. This is a listing of the codes for that box.
A: Uncollected social security or RRTA tax on tips. Include this tax on Form 1040.

B: Uncollected Medicare tax on tips.  Include this tax on Form 1040.
C: Taxable cost of group-term life insurance over $50,000 (included in boxes 1, 3 (up to social security wage base) and 5)
D: Elective deferrals to a section 401(k) cash or deferred arrangement .
E: Elective deferrals under a section 403(b) salary reduction arrangement
F: Elective deferrals and employer contributions (including non elective deferrals) to a section 408(k)(6) salary reduction SEP
G: Elective deferrals and employer contributions to a section 457(b) deferred compensation plan
H: Elective deferrals under a section 501(c)(18)(D) tax exempt organization plan
J: Nontaxable sick pay

K: 20% excise tax on excess golden parachute payments
L: Substantiated employee business expense reimbursements
M: Uncollected social security or RRTA tax on taxable cost of group-term life insurance over $50,000
N: Uncollected Medicare tax on taxable cost of group-term life insurance over $50,000
P: Exclude-able moving expense reimbursements paid directly to employee
Q: Nontaxable combat pay
R: Employer contributions to an Archer MSA
S: Employee salary reduction contributions under a section 408(p) SIMPLE

T: Adoption benefits
V: Income from the exercise of non statutory stock options
W: Employer contributions to an employee's Health Savings Account
Y: Deferrals under a section 409A non qualified deferred compensation plan
Z: Income under a section 409A on a non qualified deferred compensation plan
AA: Designated Roth contributions to a section 401(k) plan
BB: Designated Roth contributions to a section 403(b) salary reduction agreement
DD: Cost of employer-sponsored health coverage
EE: Designated Roth contributions under a governmental section 457(b) plan.
Forms W-2 provide information to your employees, social security, the IRS, and state and local governments.
Employers must file Form W-2 for wages paid to each employee from whom:

• Income, social security, or Medicare tax was withheld or
• Income tax would have been withheld if the employee had claimed no more than one withholding allowance or had not claimed exemption from withholding on Form W-4, Employee's Withholding Allowance Certificate.

Also, every employer engaged in a trade or business who pays remuneration for services performed by an employee, including non-cash payments, must file a Form W-2 for each employee even if the employee is related to the employer.
Form W-2C is filed to correct a previous Form W-2 submission. File a Form W-3C whenever you file a Form W-2C with Social Security, even if you are only filing Form W-2C to correct an employee's name or Social Security number (SSN).

What is IRS Form 1099-B?

Form 1099-B is an information return that the Internal Revenue Service requires to be filed for the gross proceeds of the sales of option shares in non-retirement accounts minus or including a contingent deferred sales charge (CDSC) and redemption fees.  Most commonly, mutual fund withdrawals and stock sales are reported with Form 1099-B.  However, several other stock related transactions should be reported on Form 1099-B.  Form 1099-B is not used however to report capital gains or losses.  The 1099-B information return is used to complete Schedule D on Form 1040 which requires the reporting of option shares.


Generally an employee's broker will complete the 1099-B after the sale of option shares and send it to the payment recipient.  The broker may choose to report the transaction amount including transaction fees or excluding transaction fees.  If the broker chooses to report the proceeds including transaction costs, the person receiving the 1099-B form should add the fees to their cost basis on their Schedule D.
IRS Form 1099-B consists of 3-pages with 2 forms per page.  Copy A is a red-ink form that the broker can paper file with the IRS.  Do not download Copy A from the Interal Revenue Service website and print and submit.  Even if your printer can print in a red-colored ink, it's not the same ink that the IRS uses to create Copy A.  The official printed version of the IRS form is scannable, but the online vrsion of it, printed from a website, is not. A penalty may be imposed for filing forms that can't be scanned. Copy B can be printed on plain paper with black ink and is sent to the recipient.  Copy C is retained by the broker.


For brokers, each recipient of option shares must receive a 1099-B.  The form must be sent by the broker to the payment recipient by January 31 of the year after the calendar year in which the transactions being reported occurred.
Form 1099-B must be paper filed to the IRS by the end of February along with Form 1096, Annual Summary and Transmittal of U.S. Information Returns.  If you file electronically, you have until the end of March.  You can go online and file for an extension taking the due date to the end of April if you need more time.
If the recipient of the proceeds is a nonresident alien, you may have to withhold federal income tax.

When to apply backup withholding

In the United States, backup withhold is a percentage withheld by the payers to be paid to the IRS (instead of to the payee). There are several reasons why backup withholding may be required. The payer must withhold 28% if:

1. Payee fails to furnish a correct TIN to the payer.
The payee fills out Form W-9 for the payer.  The payer can run TIN matching to see if the TIN matches up with the name via the IRS database.  If it doesnt match up, begin backup withholding on any reportable payments. Every year, send a letter soliciting the payee for the correct TIN.  Continue backup withholding until you, the payer, receive a correct TIN.
2. IRS notice that the payee's TIN is incorrect.
A "B" notice is a backup withholding notice.  Its a letter from the IRS to the payer letting you know that a particular payee's TIN is incorrect.
If you receive the first "B" notice, send that notice and Form W-9 to the payee to acquire a correct name/TIN combination.
A second "B" notice tells the payee to contact the IRS or SSA to obtain a correct name/TIN combination.

If you IRS sends you, the payer, a "B" notice letting you know that a payee's TIN is incorrect, then withhold at 28% on any reportable payments made to the account more than 30 business days after you received the notice.  Continue withholding until you receive a certified Form W-9.
3. IRS notice that the payee is subject to backup withholding due to payee underreporting.
Its a rare but simple letter.  The letter notifies the payer that the payee has unreported taxable payments.  The IRS notifies the payer in writing to continue backup withholding until a certain date.
4. Payee fails to certify that she or he is not subject to backup withholding.
Failure to follow the backup withholding rules can result in penalties to the payer for filing incorrect information returns. The payer may also become liable for any uncollected amounts.
Some states, like California, require an additional 7% backup withholding if it is already required by the IRS.
Backup withholding does not apply to wages or pension payments.

Tips for preparing Copy B Statements to Recipients

Copy A is sent to the IRS.  Copy A is a red-ink form.  You can file by paper or submit the information electronically to the IRS.
Copy B is sent to the payee.  Here we provide tips on preparing Copy B statements to recipients or payees.

1. There is no time extension for distributing Copy B.  The due dates are the dates in which the Copy B must be distributed.  You can go online and request a 30-day extension for filing Copy A to the IRS, but Copy B must be sent to the payee on time.
2. If you mail Copy B, then postmark the letter on or before the due date.  You can also email, fax or just print out Copy B and hand it to the payee. Just make sure the payee gets the form.
3. Its next to impossible to print on top of the tissue-like Copy B and C forms that the IRS provides attached to Copy A red-ink form.  Almost impossible.  Your laser printer will shred that form.  You can use substitute Copy B forms that comply with the format and content requirements.  If you use a substitute, then furnish the payee with applicable instructions of the official IRS form. Substitute Copy B forms can be printed on plain paper with black ink and contain all of the data of the original forms.


4. Social Security Number (SSN) masking is encouraged and a great idea. Filers can replace the first 5 digits of the SSN with an X or *.  An example would look like ***-**-1234 or XXX-XX-1234.  Masking protects the individual payee.  If Copy B gets lost, the SSN is not compromised. The filer can not mask an EIN for a business.
5. The IRS says "no additional enclosures, such as advertising, promotional material, or a quarterly or annual report, are permitted. Even a sentence or two on the year-end statement describing new services offered by the payer is not permitted".
6. Logos are permitted on the envelope.
7. Be accurate.  Its January.  Your busy.  Your boss put the sole responsibility of preparing, printing, folding and mailing these Copy B forms in your hands.  Take the time to double check your data before distributing Copy B.  Verify that the data is printing in the correct boxes and the values are correct.

When Should You Submit 1099 Forms?

1099 forms are a type of information return that record different types of taxable income. The Internal Revenue Service requires 1099 forms to be submitted before the end of the tax year to both the IRS and the payment recipient(s). 1099 forms are used to report non-wage payments, or payments that are not considered W-2 wages, and several other types of payments and income.

There are several circumstances in which a person or business should submit a 1099 form to the IRS and payee. The 1099-MISC form covers many types of payment while other variants cover other specific types of payments that the 1099-MISC does not.

For most payments that the 1099-MISC form covers, the minimum amount necessitating reporting is $600 or more. However, there are exceptions including any substitute dividends, royalty payments, and tax-exempt interest that are more than $10. Any payment to attorneys, members of a fishing boat crew, or payee subject to backup withholding must be reported on a 1099-MISC form. If a person or business has paid a doctor, accountant, or other professional $600 or more for consultation or services, they should submit a 1099-MISC form to both the service provider and the IRS.

Some of the other payments that require a variant of the 1099 form include any interest income, distributions from IRA and pension plans, distributions from medical and health savings accounts, barter exchanges, and others. Since there are a wide variety of payments that require a 1099 form submission, it is best to call the IRS or check their website whenever there is a question about whether or not a 1099 form should be submitted.


Any payment to a freelancer or contractor that is more than $600 must be reported with a 1099 form. A potentially difficult part of the process of information reporting is determining whether a hired worker is considered by the IRS an employee or contractor. In the case that the worker qualifies as an employee, a W-2 form would be submitted to the employee and IRS. If there is a doubt, an IRS Form SS-8 may be submitted in order to receive an official decision by the IRS on the classification of the worker.
As a general rule, 1099 forms must be submitted to the taxpayer by January 31st, and to the IRS by February 28th. The form may be submitted to the IRS electronically to save time.  If a business or individual has 250 or more 1099 payees in one calendar year, the forms must be submitted electronically to the IRS.

Why Are 1099 Forms Important?

To avoid legal problems, and to avoid potential fines and auditing, it is crucial to submit 1099 information returns.  1099 forms are not submitted to the IRS as often as they should be, because many business owners and trade professionals are unaware that they need to submit one, or don't know how to prepare one. 

If you're a new business owner, you might not be aware that you need to submit 1099 forms for contractors or professionals that you hire and paid $600 or more to. This includes payments to accountants, attorneys, consultants, freelancers, and other professionals. Several other payments require 1099 form submissions, and you can check the IRS's website for more information on what types of payments need to be reported with a 1099 or other information return.
The penalties for not reporting these payments to the IRS on 1099 forms can be substantial and stiff, so it is best to make sure that all payments that classify as 1099 income are recorded on a 1099 form and sent to both the IRS and the payee by the deadline.
If you are a new freelancer or contractor, you might receive a 1099 form in the mail around the end January. If you've never seen a 1099 form you might be surprised that your client would report the income you received to the IRS. Many new freelancers or moonlighters are unaware that they must report this type of income. The 1099 form was sent because you were paid more than $600 by your client.

The IRS requires that all of your gross income is reported, including payments received while freelancing and moonlighting. Even if the payment to you was less than $600, it is still required to be documented and included on your tax return. It is a potentially devastating mistake to not report 1099 income on your taxes, because the IRS can easily note the discrepancy between the 1099 income your clients reported to the IRS and the income you claimed on your taxes.
So, when it comes to reporting 1099 income, it is best to be safe rather than sorry. Avoid the stiff fines and extra money and time spent being audited by being vigilant and sending all necessary information returns on time. If you are worried about the difficulty of preparing these forms, to make the process simpler you can use 1099 software to help you prepare your 1099 information returns.

How SSA W-2 Forms Work

W-2 forms are a type of information return that documents wage earnings. Wage earnings are earnings paid by employers to workers who are considered employees by the Internal Revenue Service. These earnings are separate from non-wage earnings that are paid to contractors or freelancers.  Non-wage earnings are reported with 1099 forms.

W-2 forms are first sent by employers to the Social Security Administration, where they are processed and sent to the IRS.  W-2 forms are also sent to employees for their own tax information and returns. An employee will receive one W-2 form for each company that he or she worked for during the year. There is usually more than one copy provided so that the employee can keep the information for record keeping purposes and also submit copies to the federal and state revenue services.  Employers are required to submit W-2 forms to employees by February 2nd and to the SSA by March 2nd.
Employers are required to know how to fill out W-2 forms for each employee. The W-2 form has 20 boxes that record income related information and it also includes identifying information on the employee and employer. Here are the first 10 boxes with a short explanation of the information included in each one.

1. Wages, tips, and compensation – the total payment that the employee received during the year minus pre-tax contributions.
2. Federal income tax withheld – any income taxes withheld from the employee's earnings.
3. Social security wages – the full amount of the employee's income that is taxed for social security.
4. Social security tax withheld – the amount of social security tax withheld from the employee's earnings.
5. Medicare wages and tips – the full amount of the employee's wages and tips that are taxed for Medicare.
6. Medicare tax withheld – the amount of Medicare tax withheld from the employee's earnings.
7. Social security tips – any tips that the employee earned.
8. Allocated tips – tips that are allocated to an employee based on IRS rules for tip reporting.
9. Advanced EIC (earned income credit) payment – the amount of payment advances given to the employee.
10. Dependent care benefits – the amount deducted from wages for dependent related care such as day care.

W-2 forms have 10 more boxes that cover other types of income documentation.  W-2 form preparation can be quite time consuming by hand. It is much easier and faster to prepare W-2 forms by using information return software.

IRS 1099-MISC Form For Contract Workers

Contract workers, or freelancers, are workers who are hired on a project-by-project basis.  The IRS 1099-MISC form is used by employers to document the earnings of contract workers.


More and more businesses are hiring contract workers because their costs are generally lower than W-2 employee costs.
This is because contract workers' earnings do not require deductions of social security, income and state tax, unemployment, health insurance, or any other type of deferred compensation.  Contractors are required to calculate any tax deductions and pay any taxes owed to the IRS on their own.
At the end of the tax year, the 1099-MISC form is sent by employers to any contractors hired during the year, and it is also submitted to the IRS for income tracking purposes.
Some examples of workers that would receive a 1099 form at the end of the tax year include freelance writers, artists, contract IT specialists, temporary laborers, and more.

Form 1099-MISC is a 5 page form where Copy A is sent to the IRS, Copy B is given to the payee or recipient and Copy C is retained by the filer or payer.  Copy A has the look and feel of  a normal sheet of paper while the other copies are almost like tissue paper. The 5-pages are connected together by a perforated edge.

The IRS requires that Copy A be submitted on their special paper with red ink if you are submitting less than 250 filings a year.  Otherwise, the IRS encourages you to submit electronically. Filing Information Returns electronically is very cost-effective, is easier than filing on paper, and is more accurate. Filing status is available within 2 business days for Forms 1098, 1099 and W2-G and electronic filers receive a later due date for most returns. When you file electronically, you are exempt from using pre-printed forms.  You can just print the Copy B on plain paper with black ink, email a PDF file to all recipients, fax Copy B to the recipients or just print it out and hand it to the recipient.
The 1099-MISC form is the most popular form to report contract worker earnings.  The other variations of the 1099 form are used to show interest and other types of earnings.
 

About IRS forms 5498, 5498-ESA and 5498-SA

IRS Form 5498 reports IRA contributions.  For those who participate in an individual retirement account, the account's trustee or issuer must report your contributions to the IRS on an annual basis.  You will receive a 5498 for each Traditional IRA or Roth IRA in which you made contributions. Form 5498 is not required by the IRA account holder to be used for his or her tax returns.


Some of the types of contributions that would be shown include: IRA contributions and year end Fair Market Values made to a traditional IRA, Roth IRA, SEP-IRA, or SIMPLE IRA account, any type of conversions made to these accounts, contributions that have been recharacterized from one IRA type to another, and more.
IRA account holders who made contributions to an IRA, performed a 60-day rollover of funds from one plan to another, converted to a Roth IRA, or did a recharacterization should receive a 5498 form.
IRS Form 5498-ESA reports Coverdell Education Savings Account (ESA) Contributions.

IRS Form 5498-SA reports contributions made to an Archer Medical Savings Account(s). 

Unlike the 1099's which are due in the beginning of the year, 5498 Forms are due in the summer.  Copy B of Form 5498 and Form 5498-SA should be mailed by the end of May.  Form 5498-ESA needs to be distributed to the beneficiary by late April.  All of the 5498 forms need to be paper or electronically filed with the IRS by the end May.
You can request an automatic 30-day time extension online through the IRS FIRE System.
5498 software at the site 1099fire.com software creates files in the format required by the IRS for electronic transmission. The system is updated each year to reflect the format changes that are made by the IRS.
Filing Information Returns electronically is very cost-effective, is easier than filing on paper, and is more accurate. Filing status is available within 2 business days for Forms 1098, 1099, 5498 and W2-G and electronic filers receive a later due date for most returns.
When you file electronically, you are exempt from using pre-printed forms.  You can just print the return in regular paper or email a PDF file to all recipients.
 

Why Are 1099 Forms Important?

To avoid legal problems, and to avoid potential fines and auditing, it is crucial to submit 1099 information returns.  1099 forms are not submitted to the IRS as often as they should be, because many business owners and trade professionals are unaware that they need to submit one, or don't know how to prepare one. 


If you're a new business owner, you might not be aware that you need to submit 1099 forms for contractors or professionals that you hire and paid $600 or more to. This includes payments to accountants, attorneys, consultants, freelancers, and other professionals. Several other payments require 1099 form submissions, and you can check the IRS's website for more information on what types of payments need to be reported with a 1099 or other information return.
The penalties for not reporting these payments to the IRS on 1099 forms can be substantial and stiff, so it is best to make sure that all payments that classify as 1099 income are recorded on a 1099 form and sent to both the IRS and the payee by the deadline.
If you are a new freelancer or contractor, you might receive a 1099 form in the mail around the end January. If you've never seen a 1099 form you might be surprised that your client would report the income you received to the IRS. Many new freelancers or moonlighters are unaware that they must report this type of income. The 1099 form was sent because you were paid more than $600 by your client.


The IRS requires that all of your gross income is reported, including payments received while freelancing and moonlighting. Even if the payment to you was less than $600, it is still required to be documented and included on your tax return. It is a potentially devastating mistake to not report 1099 income on your taxes, because the IRS can easily note the discrepancy between the 1099 income your clients reported to the IRS and the income you claimed on your taxes.
So, when it comes to reporting 1099 income, it is best to be safe rather than sorry. Avoid the stiff fines and extra money and time spent being audited by being vigilant and sending all necessary information returns on time. If you are worried about the difficulty of preparing these forms, to make the process simpler you can use 1099 software to help you prepare your 1099 information returns.

How SSA W-2 Forms Work

W-2 forms are a type of information return that documents wage earnings. Wage earnings are earnings paid by employers to workers who are considered employees by the Internal Revenue Service. These earnings are separate from non-wage earnings that are paid to contractors or freelancers.  Non-wage earnings are reported with 1099 forms.


W-2 forms are first sent by employers to the Social Security Administration, where they are processed and sent to the IRS.  W-2 forms are also sent to employees for their own tax information and returns. An employee will receive one W-2 form for each company that he or she worked for during the year. There is usually more than one copy provided so that the employee can keep the information for record keeping purposes and also submit copies to the federal and state revenue services.  Employers are required to submit W-2 forms to employees by February 2nd and to the SSA by March 2nd.
Employers are required to know how to fill out W-2 forms for each employee. The W-2 form has 20 boxes that record income related information and it also includes identifying information on the employee and employer. Here are the first 10 boxes with a short explanation of the information included in each one.

1. Wages, tips, and compensation – the total payment that the employee received during the year minus pre-tax contributions.
2. Federal income tax withheld – any income taxes withheld from the employee's earnings.
3. Social security wages – the full amount of the employee's income that is taxed for social security.
4. Social security tax withheld – the amount of social security tax withheld from the employee's earnings.
5. Medicare wages and tips – the full amount of the employee's wages and tips that are taxed for Medicare.
6. Medicare tax withheld – the amount of Medicare tax withheld from the employee's earnings.
7. Social security tips – any tips that the employee earned.
8. Allocated tips – tips that are allocated to an employee based on IRS rules for tip reporting.
9. Advanced EIC (earned income credit) payment – the amount of payment advances given to the employee.
10. Dependent care benefits – the amount deducted from wages for dependent related care such as day care.

W-2 forms have 10 more boxes that cover other types of income documentation.  W-2 form preparation can be quite time consuming by hand. It is much easier and faster to prepare W-2 forms by using information return software.

IRS 1099-MISC Form For Contract Workers

Contract workers, or freelancers, are workers who are hired on a project-by-project basis.  The IRS 1099-MISC form is used by employers to document the earnings of contract workers.


More and more businesses are hiring contract workers because their costs are generally lower than W-2 employee costs.
This is because contract workers' earnings do not require deductions of social security, income and state tax, unemployment, health insurance, or any other type of deferred compensation.  Contractors are required to calculate any tax deductions and pay any taxes owed to the IRS on their own.
At the end of the tax year, the 1099-MISC form is sent by employers to any contractors hired during the year, and it is also submitted to the IRS for income tracking purposes.
Some examples of workers that would receive a 1099 form at the end of the tax year include freelance writers, artists, contract IT specialists, temporary laborers, and more.

Form 1099-MISC is a 5 page form where Copy A is sent to the IRS, Copy B is given to the payee or recipient and Copy C is retained by the filer or payer.  Copy A has the look and feel of  a normal sheet of paper while the other copies are almost like tissue paper. The 5-pages are connected together by a perforated edge.

The IRS requires that Copy A be submitted on their special paper with red ink if you are submitting less than 250 filings a year.  Otherwise, the IRS encourages you to submit electronically. Filing Information Returns electronically is very cost-effective, is easier than filing on paper, and is more accurate. Filing status is available within 2 business days for Forms 1098, 1099 and W2-G and electronic filers receive a later due date for most returns. When you file electronically, you are exempt from using pre-printed forms.  You can just print the Copy B on plain paper with black ink, email a PDF file to all recipients, fax Copy B to the recipients or just print it out and hand it to the recipient.
The 1099-MISC form is the most popular form to report contract worker earnings.  The other variations of the 1099 form are used to show interest and other types of earnings.
 

About IRS forms 5498, 5498-ESA and 5498-SA

IRS Form 5498 reports IRA contributions.  For those who participate in an individual retirement account, the account's trustee or issuer must report your contributions to the IRS on an annual basis.  You will receive a 5498 for each Traditional IRA or Roth IRA in which you made contributions. Form 5498 is not required by the IRA account holder to be used for his or her tax returns.


Some of the types of contributions that would be shown include: IRA contributions and year end Fair Market Values made to a traditional IRA, Roth IRA, SEP-IRA, or SIMPLE IRA account, any type of conversions made to these accounts, contributions that have been recharacterized from one IRA type to another, and more.
IRA account holders who made contributions to an IRA, performed a 60-day rollover of funds from one plan to another, converted to a Roth IRA, or did a recharacterization should receive a 5498 form.
IRS Form 5498-ESA reports Coverdell Education Savings Account (ESA) Contributions.
IRS Form 5498-SA reports contributions made to an Archer Medical Savings Account(s).


Unlike the 1099's which are due in the beginning of the year, 5498 Forms are due in the summer.  Copy B of Form 5498 and Form 5498-SA should be mailed by the end of May.  Form 5498-ESA needs to be distributed to the beneficiary by late April.  All of the 5498 forms need to be paper or electronically filed with the IRS by the end May.
You can request an automatic 30-day time extension online through the IRS FIRE System.
5498 software at the site 1099fire.com software creates files in the format required by the IRS for electronic transmission. The system is updated each year to reflect the format changes that are made by the IRS.
Filing Information Returns electronically is very cost-effective, is easier than filing on paper, and is more accurate. Filing status is available within 2 business days for Forms 1098, 1099, 5498 and W2-G and electronic filers receive a later due date for most returns.
When you file electronically, you are exempt from using pre-printed forms.  You can just print the return in regular paper or email a PDF file to all recipients.

Printable 1099 and W-2 Tax Forms

You can download any 1099 tax form from the IRS website.  This first page of the form goes out of the way to say
"Do not file copy A downloaded from this website. The official printed version of this IRS form is scannable, but the online version of it, printed from this website, is not.  A penalty may be imposed for filing forms that can't be scanned."

There are a few key points to take from this paragraph:
1. Copy A is a red-ink form. It is a special red-ink.  If you try to print Copy A with store bought red-ink, its not the same type of red-ink that the IRS uses to print out the 1099 forms. The IRS is asking you to not print Copy A and try to submit because store-bought red-ink forms will not scan correctly.
2. You can print Copy B or C to plain paper with black ink.  Copy B and C is the payee and payer copies.  You don't even have to print and mail Copy B to the recipient.  You can convert to PDF and email or just print it out and hand the form to the recipient.


Form W-2 is different.  While Form W-2 is developed by the IRS, you paper or electronically file with the Social Security Administration (SSA).  SSA developed substitute Copy A forms for the W-2.  Software developers will receive a PDF of the substitute W-2, W-3, W-2C and W-3C forms in June or July.  Then can build those substitute forms into their software application and then mail the forms to SSA for review.  SSA will test to see if the forms will align with their scanners.  If they do, then that software developer will receive a letter of approval letting them know that their substitute forms can be read by SSA scanner equipment.  You receive on letter of approval for the W-2, W-3 forms and another for the W-2C, W-3C forms.
An employer can print Copy A of a substitute Form W-2 on plain paper with black ink.  Its a great feature and service offered by SSA.

Form W-2: Box 12 code

Box 12 of Form W-2 shows a code followed by a value.  The code indicates the type of payment. This is a listing of the codes for that box.
A: Uncollected social security or RRTA tax on tips. Include this tax on Form 1040.


B: Uncollected Medicare tax on tips.  Include this tax on Form 1040.
C: Taxable cost of group-term life insurance over $50,000 (included in boxes 1, 3 (up to social security wage base) and 5)
D: Elective deferrals to a section 401(k) cash or deferred arrangement .
E: Elective deferrals under a section 403(b) salary reduction arrangement
F: Elective deferrals and employer contributions (including nonelective deferrals) to a section 408(k)(6) salary reduction SEP
G: Elective deferrals and employer contributions to a section 457(b) deferred compensation plan
H: Elective deferrals under a section 501(c)(18)(D) tax exempt organization plan
J: Nontaxable sick pay
K: 20% excise tax on excess golden parachute payments
L: Substantiated employee business expense reimbursements
M: Uncollected social security or RRTA tax on taxable cost of group-term life insurance over $50,000
N: Uncollected Medicare tax on taxable cost of group-term life insurance over $50,000
P: Excludable moving expense reimbursements paid directly to employee
Q: Nontaxable combat pay
R: Employer contributions to an Archer MSA
S: Employee salary reduction contributions under a section 408(p) SIMPLE


T: Adoption benefits
V: Income from the exercise of nonstatutory stock options
W: Employer contributions to an employee's Health Savings Account
Y: Deferrals under a section 409A nonqualified deferred compensation plan
Z: Income under a section 409A on a nonqualified deferred compensation plan
AA: Designated Roth contributions to a section 401(k) plan
BB: Designated Roth contributions to a section 403(b) salary reduction agreement
DD: Cost of employer-sponsored health coverage
EE: Designated Roth contributions under a governmental section 457(b) plan.
Forms W-2 provide information to your employees, social security, the IRS, and state and local governments.
Employers must file Form W-2 for wages paid to each employee from whom:

• Income, social security, or Medicare tax was withheld or
• Income tax would have been withheld if the employee had claimed no more than one withholding allowance or had not claimed exemption from withholding on Form W-4, Employee's Withholding Allowance Certificate.

Also, every employer engaged in a trade or business who pays remuneration for services performed by an employee, including non-cash payments, must file a Form W-2 for each employee even if the employee is related to the employer.
Form W-2C is filed to correct a previous Form W-2 submission. File a Form W-3C whenever you file a Form W-2C with Social Security, even if you are only filing Form W-2C to correct an employee's name or Social Security number (SSN).

What is IRS Form 1099-R?

Form 1099-R is an Internal Revenue Service information report used to payers to report distributions from annuities, IRAs, profit sharing plans, insurance contracts, retirement plans, and pensions to recipients.  Form 1099-R also shows capital gains that are related to these distributions, and it shows any insurance premiums or contributions made to the plan by the plan holder.  Any distribution exceeding $10 is required to be reported by payers on Form 1099-R.  A separate 1099-R form should be prepared for each type of benefit in which a payment was received, and for each recipient of a benefit.  The type of benefit is noted in Box 7 of Form 1099-R.


Form 1099-R is used by the IRS to track these payments to recipients and match income data from the payer and payment recipient.  The 1099-R form may be used by the payment recipient to help complete his or her own tax return, or be sent to a tax preparer for assistance with the preparation.  Form 1099-R should be sent to the payment recipient by January 31 of the year following the calendar year that the payments were sent.  It is due to the IRS along with Form 1096 by February 28.  Instead of paper filing, you can file electronically and have an additional month of time taking the due date to the end of March.  You can also file for a 30-day extension giving you until the end of April to file electronically. Along with the payment recipient, the IRS and the state tax or revenue departments should receive a copy of the completed 1099-R form.
1099-R software at the site 1099fire.com makes it easy to import, print and/or efile IRS Form 1099-R quickly and easily. File unlimited 1099-R's electronically with the IRS. 1099FIRE software creates files in the format required by the IRS for electronic transmission. The system is updated each year to reflect the format changes that are made by the IRS. 1099FIRE is the only company to offer OneTouch E-Filing. Just click a button and the software will automatically log in and upload your file to the IRS FIRE system. You will receive verification within seconds of receipt of your file. For all kinds of  1099 software please visit us.

When to apply backup withholding

In the United States, backup withhold is a percentage withheld by the payers to be paid to the IRS (instead of to the payee). There are several reasons why backup withholding may be required. The payer must withhold 28% if:


1. Payee fails to furnish a correct TIN to the payer.
The payee fills out Form W-9 for the payer.  The payer can run TIN matching to see if the TIN matches up with the name via the IRS database.  If it doesnt match up, begin backup withholding on any reportable payments. Every year, send a letter soliciting the payee for the correct TIN.  Continue backup withholding until you, the payer, receive a correct TIN.
2. IRS notice that the payee's TIN is incorrect.
A "B" notice is a backup withholding notice.  Its a letter from the IRS to the payer letting you know that a particular payee's TIN is incorrect.
If you receive the first "B" notice, send that notice and Form W-9 to the payee to acquire a correct name/TIN combination.
A second "B" notice tells the payee to contact the IRS or SSA to obtain a correct name/TIN combination.

If you IRS sends you, the payer, a "B" notice letting you know that a payee's TIN is incorrect, then withhold at 28% on any reportable payments made to the account more than 30 business days after you received the notice.  Continue withholding until you receive a certified Form W-9.
3. IRS notice that the payee is subject to backup withholding due to payee underreporting.
Its a rare but simple letter.  The letter notifies the payer that the payee has unreported taxable payments.  The IRS notifies the payer in writing to continue backup withholding until a certain date.
4. Payee fails to certify that she or he is not subject to backup withholding.
Failure to follow the backup withholding rules can result in penalties to the payer for filing incorrect information returns. The payer may also become liable for any uncollected amounts.
Some states, like California, require an additional 7% backup withholding if it is already required by the IRS.
Backup withholding does not apply to wages or pension payments.
 

Tips for preparing Copy B Statements to Recipients

Copy A is sent to the IRS.  Copy A is a red-ink form.  You can file by paper or submit the information electronically to the IRS.
Copy B is sent to the payee.  Here we provide tips on preparing Copy B statements to recipients or payees.


1. There is no time extension for distributing Copy B.  The due dates are the dates in which the Copy B must be distributed.  You can go online and request a 30-day extension for filing Copy A to the IRS, but Copy B must be sent to the payee on time.
2. If you mail Copy B, then postmark the letter on or before the due date.  You can also email, fax or just print out Copy B and hand it to the payee. Just make sure the payee gets the form.
3. Its next to impossible to print on top of the tissue-like Copy B and C forms that the IRS provides attached to Copy A red-ink form.  Almost impossible.  Your laser printer will shred that form.  You can use substitute Copy B forms that comply with the format and content requirements.  If you use a substitute, then furnish the payee with applicable instructions of the official IRS form. Substitute Copy B forms can be printed on plain paper with black ink and contain all of the data of the original forms.

4. Social Security Number (SSN) masking is encouraged and a great idea. Filers can replace the first 5 digits of the SSN with an X or *.  An example would look like ***-**-1234 or XXX-XX-1234.  Masking protects the individual payee.  If Copy B gets lost, the SSN is not compromised. The filer can not mask an EIN for a business.
5. The IRS says "no additional enclosures, such as advertising, promotional material, or a quarterly or annual report, are permitted. Even a sentence or two on the year-end statement describing new services offered by the payer is not permitted".
6. Logos are permitted on the envelope.
7. Be accurate.  Its January.  Your busy.  Your boss put the sole responsibility of preparing, printing, folding and mailing these Copy B forms in your hands.  Take the time to double check your data before distributing Copy B.  Verify that the data is printing in the correct boxes and the values are correct.

for any further information please contact us.

What is IRS Form 1099-C?

IRS Form 1099-C is used by creditors (such as the federal government, banks or other financial institutions, credit card companies, or credit unions) to report debts that are cancelled to debtors that exceed $600. 

The debtor is required to include this amount as income. If the debtor had a debt written off and did not receive a 1099-C form, it is likely that the form was still reported to the IRS, and the creditor should be notified.
Not every type of forgiven debt is considered to be taxable by the IRS.  Although a 1099-C form is still required to be submitted to the IRS by creditors for all debts written off that exceed $600, the debtor in some situations is not required to report the cancelled debt as income.
For example, the Mortgage Forgiveness Debt Relief Act of 2007 allows certain exemptions for reporting forgiven debt relating to foreclosed homes.  If the cancelled debt was intended to be a gift, the debtor is not required to report it as income.  Any debt that was discharged in a Chapter 11 bankruptcy would be excluded from reporting requirements.  If you are insolvent, or if your debts exceed the value of your assets before the creditor agreed to write off your debt, you are not required to report that cancelled debt as income on your tax return.


1099-C forms are required to be submitted to the debtor by January 31.  The deadline for paper filing to the IRS is typically the end of February.  If you decide to efile, you have an additional month to submit the data; the deadline for efiling is typing the end of March.  You can request an 30-day extension online taking the due date to the end of April.
1099-C software at 1099fire.com creates original, replacement and corrected files in the format required by the IRS for electronic transmission. The system is updated each year to reflect the format changes that are made by the IRS.
You can file electronically whether you have just one information return or millions.  The IRS encourages everyone to file electronically and requires businesses with more than 250 information returns to electronically file.

Tips for 1099 paper filing

This article lists and discusses tips for 1099 paper filing. If you have any tip that is not listed here, please add your comments below to this article.  We are always eager to hear about any new 1099 paper filing tips.


DON'T
1. Do not buy the forms (unless your really pushed for time). The red-ink forms are free.  You can order by phone by calling 800-TAX-FORM.  There is no charge for calling, shipping or handling and the IRS will ship up too 100 forms per call.
2. Do not photocopy Copy A or download the forms from the internet and try to print Copy A and mail them in.  The red-ink Copy A forms have a special red-ink.  Even if you have a color printer and print Copy A in red colored ink, its not the same kind of red-ink that the IRS uses to create the form.  Consequently, the forms will not scan and will be rejected.  You have to get the official red-ink forms from the IRS.
3. Do not cut or separate Copy A of the forms. Form 1098, for example, has 3 Form 1098 records for one sheet of paper.  For Copy B, you can cut these individual records and distribute to the payee's. But for Copy A, don't cut the form at all.  Leave it whole.
4. Do not staple, tear, tape or fold any forms. Prepare Copy A for each 1099 and their corresponding 1096.  Send the Copy A forms along with the 1096 to the IRS in a flat mailing.  Staples, tape or anything else will interfere with the IRS scanners.
5. Do not submit any copy to the IRS except Copy A.  Do not submit Copy B or C to the IRS.
6. Do not use prior year forms unless you are reporting prior year data.  If you are filing for tax year 2011, don't find a 2010 tax year form and scratch out "2010" and write 2011 at the top and mail even if there were no changes in the forms from one year to another.
7. Do not use dollar signs ($), ampersands (&), asterisks (*), commas, or other special characters in the money amount boxes. Don't write 0 or "zero" or "none" in a money amount box when no entry is required.


DON'T
1. Do not buy the forms (unless your really pushed for time). The red-ink forms are free.  You can order by phone by calling 800-TAX-FORM.  There is no charge for calling, shipping or handling and the IRS will ship up too 100 forms per call.
2. Do not photocopy Copy A or download the forms from the internet and try to print Copy A and mail them in.  The red-ink Copy A forms have a special red-ink.  Even if you have a color printer and print Copy A in red colored ink, its not the same kind of red-ink that the IRS uses to create the form.  Consequently, the forms will not scan and will be rejected.  You have to get the official red-ink forms from the IRS.
3. Do not cut or separate Copy A of the forms. Form 1098, for example, has 3 Form 1098 records for one sheet of paper.  For Copy B, you can cut these individual records and distribute to the payee's. But for Copy A, don't cut the form at all.  Leave it whole.
4. Do not staple, tear, tape or fold any forms. Prepare Copy A for each 1099 software and their corresponding 1096.  Send the Copy A forms along with the 1096 to the IRS in a flat mailing.  Staples, tape or anything else will interfere with the IRS scanners.
5. Do not submit any copy to the IRS except Copy A.  Do not submit Copy B or C to the IRS.
6. Do not use prior year forms unless you are reporting prior year data.  If you are filing for tax year 2011, don't find a 2010 tax year form and scratch out "2010" and write 2011 at the top and mail even if there were no changes in the forms from one year to another.
7. Do not use dollar signs ($), ampersands (&), asterisks (*), commas, or other special characters in the money amount boxes. Don't write 0 or "zero" or "none" in a money amount box when no entry is required.

IRS Letter 2485

IRS letter 2485 is a common letter typically sent and received in mid-July.  The letter says:
"We have no record of receiving an electronic media file containing information returns 1097, 1098, 1099, 3921, 3922, 5498 and/or W-2G (Certain Gambling Winnings) from you for Transmitter Control Code (TCC) for tax year."
Getting a letter from the IRS concerns everyone. If you read the letter closely though, you see that it's saying the IRS has not received information returns from the TCC listed on the letter.  If you hired a service bureau, then the service bureau probably efiled with their own TCC number.  Contact the service bureau that you used to see which TCC number they used to electronically file.
The letter also says that if you don't use your TCC number for two consecutive years, that your TCC number will eventually be recycled and you will have to apply for a new TCC number using Form 4419.
Service bureau's can you save you time.  You provide the data in excel and they can prepare everything, print and mail (or electronically deliver Copy B) and file electronically before the due date.  A service bureau typically likes to use their own TCC number because they can log in at any time and efile.  If you want to use your own TCC number, then the service puts everything together with your transmitter control code and transmits the final data file to you.  You the client then has to log into the IRS FIRE System and upload the file.

With regards to this letter, you just have to decide whether you want to electronically file on your own or through a service bureau.  If you decide to use a service bureau, then just ignore this IRS form letter and your TCC number will eventually be assigned to someone else.  If you decide that you want to efile on your own, then you can also ignore this letter and efile on your own next year.  If any of the information on the form is incorrect, you can correct it and fax it back to the IRS and they will update your account.