Tax information reporting
Encyclopedia
Tax information reporting in the United States
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.
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 (and some other types of business interest as well). Form 1099-S reports income from the sale of real estate. Form 1099-R reports payments from pensions, annuities
, 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
, crop insurance 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
; Form 1098-T reports tuition
and other educational expenses; Form 1098-E reports interest on student loans
; Form 1098-C reports the value of a vehicle
that has been donated to a charitable organization.
s. 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.
and the federal administration seek ways to close the "tax gap
" of over $300 billion dollars annually that would be collected by the federal government if all income were reported by U.S. individuals and businesses.
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
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
Internal Revenue Service
The Internal Revenue Service is the revenue service of the United States federal government. The agency is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue...
(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
Federal government
The federal government is the common government of a federation. The structure of federal governments varies from institution to institution. Based on a broad definition of a basic federal political system, there are two or more levels of government that exist within an established territory and...
and the states
U.S. state
A U.S. state is any one of the 50 federated states of the United States of America that share sovereignty with the federal government. Because of this shared sovereignty, an American is a citizen both of the federal entity and of his or her state of domicile. Four states use the official title of...
. There are currently more than 30 types of tax information returns
Tax forms in the United States
IRS tax forms are used for taxpayers and tax-exempt organizations to report financial information to the Internal Revenue Service of the United States. They are used to report income, calculate taxes to be paid to the federal government of the United States, and disclose other information as...
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, 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 (and some other types of business interest as well). Form 1099-S reports income from the sale of real estate. Form 1099-R reports payments from pensions, annuities
Annuity (finance theory)
The term annuity is used in finance theory to refer to any terminating stream of fixed payments over a specified period of time. This usage is most commonly seen in discussions of finance, usually in connection with the valuation of the stream of payments, taking into account time value of money...
, 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
Renting
Renting is an agreement where a payment is made for the temporary use of a good, service or property owned by another. A gross lease is when the tenant pays a flat rental amount and the landlord pays for all property charges regularly incurred by the ownership from landowners...
, crop insurance proceeds, so-called "golden parachute
Golden parachute
A golden parachute is an agreement between a company and an employee specifying that the employee will receive certain significant benefits if employment is terminated. Sometimes, certain conditions, typically a change in company ownership, must be met, but often the cause of termination is...
" payments, royalties
Royalties
Royalties are usage-based payments made by one party to another for the right to ongoing use of an asset, sometimes an intellectual property...
, payments for medical treatment, income from fish that are sold for cash, and payments for business services.
Form 1098 reports interest on a mortgage
Mortgage loan
A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...
; Form 1098-T reports tuition
Tuition
Tuition payments, known primarily as tuition in American English and as tuition fees in British English, Canadian English, Australian English, New Zealand English and Indian English, refers to a fee charged for educational instruction during higher education.Tuition payments are charged by...
and other educational expenses; Form 1098-E reports interest on student loans
Student loans in the United States
While included in the term "financial aid," higher education loans differ from scholarships and grants in that they must be paid back. They come in several varieties in the United States:...
; Form 1098-C reports the value of a vehicle
Vehicle
A vehicle is a device that is designed or used to transport people or cargo. Most often vehicles are manufactured, such as bicycles, cars, motorcycles, trains, ships, boats, and aircraft....
that has been donated to a charitable organization.
State reporting
These are only a few of the federal formTax form
A tax form is a blank document or template supplied by a government for use in the reporting of tax information to the government or to potential taxpayers...
s. 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 CongressUnited States Congress
The United States Congress is the bicameral legislature of the federal government of the United States, consisting of the Senate and the House of Representatives. The Congress meets in the United States Capitol in Washington, D.C....
and the federal administration seek ways to close the "tax gap
Tax avoidance and tax evasion
Tax noncompliance describes a range of activities that are unfavorable to a state's tax system. These include tax avoidance, which refers to reducing taxes by legal means, and tax evasion which refers to the criminal non-payment of tax liabilities....
" of over $300 billion dollars annually that would be collected by the federal government if all income were reported by U.S. individuals and businesses.