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SAP Business ByDesign – US 1099 MISC Tax Returns

1099 is one of several IRS (Internal Revenue Service) tax forms used in the United States to prepare and file an information return to report various types of income other than wages, salaries, and tips. 1099-MISC is a variant of 1099 used to report miscellaneous income. One notable use of Form 1099-MISC is to report amounts paid by a business to a non-corporate US resident independent contractor for services (in IRS terminology, such payments are nonemployee compensation). Other uses of Form 1099-MISC include rental income, royalties, and Indian gaming profits.
The form is issued by the payer (e.g. business) and is due to the recipient (e.g. contractor) by January 31 and to the IRS by the last day of February each year for work done during the previous tax year.

Pre-requisites for withholding tax calculation

To calculate withholding taxes in your system, below settings are required

Supplier Base work center:

You need to have stored suppliers with data relevant for withholding tax. For this, you choose Common Tasks → New Supplier. Choose View All to switch to Financial Data → Tax Data. Enter the tax number and the withholding tax classification.

Product Data work center:

You need to mark the products and services from suppliers as relevant to withholding tax so that the system can automatically determine the withholding tax data for these products and services and copy it into the withholding tax return. For this, select the relevant item for processing under Services or Materials and then switch to Taxes tab and maintain withholding tax classification.

Tax management work center:

You need to mark the company as withholding tax required. For this, select the relevant tax authority in the Tax Management → Company Tax Arrangements and mark the company as withholding tax required.

Configuration for creating withholding tax returns

Scoping:

You need to edit the scope of your business configuration project and scope-in the 1099 related business option available under Cash Flow Management→ Tax Management → Tax Filing

Business options:

Do you use the US withholding tax form 1099 Miscellaneous?

Do you use the US withholding tax file 1099 Miscellaneous?

Fine-tuning:

The SAP pre-delivered configuration for 1099 returns can be viewed and modified using the below business configuration fine-tuning activity.

Activity: Withholding Tax Return – US

“Review and change the settings for 1099 Misc. withholding tax returns.” In this activity, you can also maintain the list of relevant reporting states for the tax return.

“Define threshold codes with the corresponding threshold amounts.” Only payments and withholding base entries whose sum of base amounts exceeds the threshold will be considered in the tax returns.

Company Tax Arrangement Setup:

You need to set-up tax return arrangements under the company tax arrangement of relevant tax authority and company. Below 1099 return types are supported in ByDesign

  • Miscellaneous Income (1099 Misc) – File
  • Miscellaneous Income (1099 Misc) – FormB

Combined Federal/State Filing Program (CF/SF)
The Combined Federal/State Filing Program (CF/SF) was established to simplify information returns filing for payers. Through CF/SF, the IRS electronically forwards information returns (original and corrected) to participating states.

If you are registered for the CFSF program you can use the option “Combined Federal/State Filter” available on the withholding tax return run (Tax Management → Withholding Tax Return Runs)

 

When a withholding tax return run finishes successfully a withholding tax return will be created, when this is released the file will be available in the attachments tab.

 

For the tax year 2017, detailed format specification of the 1099 Misc file can be found in the IRS Publication 1220 in the below link:

https://www.irs.gov/pub/irs-pdf/p1220.pdf

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