Tax information reporting in the

United States The United States of America (U.S.A. or USA), commonly known as the United States (U.S. or US) or America, is a country primarily located in North America. It consists of 50 states, a federal district, five major unincorporated territori ...

is a requirement for organizations to report wage and non-wage payments made in the course of their trade or business to the Internal Revenue Service (IRS). This area of government reporting and corporate responsibility is continuously growing, carrying with it a large number of regulatory requirements established by the federal government and the states. There are currently more than 30 types of tax information returns required by the federal government, and they provide the primary cross-checking measure the IRS has to verify accuracy of tax returns filed by individual taxpayers.

Information returns

The tax information return most familiar to the greatest number of people is the

Form W-2 Form W-2 (officially, the "Wage and Tax Statement") is an Internal Revenue Service (IRS) tax form used in the United States to report wages paid to employees and the taxes withheld from them. Employers must complete a Form W-2 for each employee ...

, which reports wages and other forms of compensation paid to employees. There are also many forms used to report non-wage income, and to report transactions that may entitle a taxpayer to take a credit on an individual tax return. These non-wage forms are the Forms 1099 (of which there are 16 types), Forms 1098 (of which there are four types), and Forms 5498 (of which there are three types). Each information return reports a different type of payment or transaction; some are used for multiple types of transactions. In addition, each information return has its own unique rules on when, what, and the amount to report, making it difficult to track reporting obligations. The complexity that arises in filing large volumes of information returns requires many filers to depend on third party information reporting software. Form 1099-INT reports interest paid on deposits at

financial institutions Financial institutions, sometimes called banking institutions, are business entities that provide services as intermediaries for different types of financial monetary transactions. Broadly speaking, there are three major types of financial insti ...

(and some other types of business interest as well). Form 1099-S reports income from the sale of real estate.

Form 1099-R In the United States, Form 1099-R is a variant of Form 1099 used for reporting on distributions from pensions, annuities, retirement or profit sharing plans, IRAs, charitable gift annuities and Insurance Contracts. Form 1099-R is filed for each p ...

reports payments from pensions,

annuities In investment, an annuity is a series of payments made at equal intervals.Kellison, Stephen G. (1970). ''The Theory of Interest''. Homewood, Illinois: Richard D. Irwin, Inc. p. 45 Examples of annuities are regular deposits to a savings account, m ...

, retirement and profit-sharing plans, IRA accounts, and some forms of insurance. Forms 1099-DIV, 1099-B and 1099-OID report various investment income and transactions. Form 1099-MISC reports a variety of payments including

rent Rent may refer to: Economics *Renting, an agreement where a payment is made for the temporary use of a good, service or property *Economic rent, any payment in excess of the cost of production *Rent-seeking, attempting to increase one's share of e ...

crop insurance Crop insurance is purchased by agricultural producers, and subsidized by the federal government, to protect against either the loss of their crops due to natural disasters, such as hail, drought, and floods, or the loss of revenue due to declines ...

proceeds, so-called " golden parachute" payments, royalties, payments for medical treatment, income from fish that are sold for cash, and payments for business services. Form 1098 reports interest on a

mortgage A mortgage loan or simply mortgage (), in civil law jurisdicions known also as a hypothec loan, is a loan used either by purchasers of real property to raise funds to buy real estate, or by existing property owners to raise funds for any ...

;

Form 1098-T Form 1098-T, Tuition Statement, is an American IRS tax forms, IRS tax form filed by eligible education institutions (or those filing on the institution's behalf) to report payments received and payments due from the paying student. The institution ...

reports

tuition Tuition payments, usually known as tuition in American English and as tuition fees in Commonwealth English, are fees charged by education institutions for instruction or other services. Besides public spending (by governments and other public bo ...

and other educational expenses; Form 1098-E reports interest on

student loans A student loan is a type of loan designed to help students pay for post-secondary education and the associated fees, such as tuition, books and supplies, and living expenses. It may differ from other types of loans in the fact that the interest ...

; Form 1098-C reports the value of a

vehicle A vehicle (from la, vehiculum) is a machine that transports people or cargo. Vehicles include wagons, bicycles, motor vehicles (motorcycles, cars, trucks, buses, mobility scooters for disabled people), railed vehicles (trains, trams), ...

that has been donated to a charitable organization.

State reporting

These are only a few of the federal forms. States have many equivalent forms and reporting requirements. Taken together, these tax information reporting forms touch hundreds of millions of individuals and businesses, and require a large time commitment on the part of businesses, nonprofit organizations, and educational institutions to administer, prepare and file.

Penalties

In its continual effort to enforce the tax laws and identify unreported and under-reported income, the IRS uses tax information returns in electronic cross-matching against income tax returns. Because of this reliance on receiving information returns from the payers of income, the IRS administers a system of assessing monetary penalties, which can be severe, on businesses and other entities that do not file all of the information returns they are required to file, or file the returns with errors that make it more difficult for the IRS to identify the taxpayers who received the income.

Tax gap

An increasing amount of attention, and government enforcement, is being focused on tax information reporting as the

United States Congress The United States Congress is the legislature of the federal government of the United States. It is bicameral, composed of a lower body, the House of Representatives, and an upper body, the Senate. It meets in the U.S. Capitol in Washing ...

and the federal administration seek ways to close the "

tax gap Tax noncompliance (informally tax avoision) is a range of activities that are unfavorable to a government's tax system. This may include tax avoidance, which is tax reduction by legal means, and tax evasion which is the criminal non-payment of ...

" of over $300 billion annually that would be collected by the federal government if all income were reported by U.S. individuals and businesses.

Proposed changes

Current proposals to the regulations include tax withholding on payments to independent contractors, a requirement for credit card companies to report to the IRS the gross receipts for businesses that accept their cards, and the elimination of corporate exemption to 1099 reporting.

References

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External links

Internal Revenue Service
Taxation in the United States Internal Revenue Service United States government forms Employee compensation in the United States