• University of Alaska

University of Alaska
Statewide Accounting Manual
No.: P - 116
Date: 12/06/2005
Page: 1 of 14
Title: IRS Form 1099-MISC Procedures
Purpose and Scope:
To provide guidelines for accounting and reporting vendor payments subject to
Internal Revenue Service (IRS) miscellaneous income rules and regulations.
General:
Federal regulations require organizations to report certain types of payments to
the IRS. The IRS has also established specific rules regarding the solicitation of
taxpayer identification numbers (TIN) from payees, backup withholding triggers,
vendor payments and withholding requirements.
Generally, the university is required to report payment for services made to any
individual or entity other than most corporations (exceptions are listed in the
Reportable Qualifications section of this procedure), governmental units, or
international organizations. Payments to companies, sole proprietorships,
estates, trusts, partnerships and individuals are Form 1099-MISC reportable
(reportable). In addition, the fair market value of prizes and awards must be
reported.
A Form 1099-MISC must be filed with the IRS at the end of the calendar year if
the vendor’s cumulative reportable payments meet or exceed the IRS reporting
threshold for the calendar year. Vendor payments are not reviewed on an
individual basis to determine if the payment meets the monetary criteria during
the course of the year. After the end of the calendar year, the financial
accounting system creates a Form 1099-MISC for each vendor with total
reportable payments that meet or exceed the reporting threshold. See the
Current Guidelines section of this procedure for the reporting threshold
established by the IRS applicable to the current calendar year. However, if
federal income tax has been withheld under the backup withholding rules, a Form
1099-MISC will be issued regardless of the aggregate total of payments.
When the university hires an individual or entity to perform services, the
university is required to track the amount paid to that individual or entity for
services rendered. The financial accounting system is not capable of identifying
which transactions are reportable based on the use of account codes. The
procurement and accounts payable offices share responsibility for determining
when a vendor or payment meet the reporting requirements of Form 1099-MISC.
Reportability should be considered at all the different review and processing
stages within the university’s financial accounting system.
Normally, if the service provider is an employee, the payments must be included
on their W-2. However, it is possible for an employee to qualify as an
independent contractor for providing services outside the scope of their regular
employment. The Statewide Office of Human Resources (SWOHR) makes this
determination. As an independent contractor, any services provided are
reportable.
 University of Alaska
Statewide Accounting Manual
No.: P - 116
Date: 12/06/2005
Page: 2 of 14
Title: IRS Form 1099-MISC Procedures
Taxpayer Identification Number (TIN):
The procurement and accounts payable offices must obtain the vendors’ TIN
exactly as assigned by the Social Security Administration (SSA) or the IRS. The
vendor name in the financial accounting system must be exactly the same as the
SSA or IRS records. Each MAU should have a completed Form W-9 or qualified
substitute from the vendor in accordance with IRS regulations prior to the set up
of a vendor on the financial accounting system.
When there is ambiguity regarding the corporate status, the university may
require the individual or entity to provide certification of incorporation via IRS
Form W-9 or qualified substitute or a copy of their articles of incorporation. See
IRS Form W-9 instructions for the certification procedure.
The university is required by law to initiate backup withholding at the current rate
established by the IRS if the vendor is unwilling to provide their TIN through a
Form W-9 or a qualified substitute. Backup withholding deducted from a vendors’
payment cannot be returned to the vendor, it must be remitted to the IRS. The
university could be fined or penalized by the IRS if the vendor is paid without
obtaining the TIN, even if the vendor is not in arrears on their income taxes.
The withholding percentage is established by the IRS and may be changed on an
annual basis. See the Current Guidelines section of this procedure for the
current withholding rate established by the IRS.
When the Form 1099-MISC is submitted to the IRS, the name and TIN on the
form is compared to SSA and IRS records. Discrepancies are sent to the
university on an IRS CP-2100 notice for each calendar year filing of Forms 1099-
MISC. For example, if the vendor’s name in the IRS records is ‘North Start
Company’ but is entered in the financial accounting system as ‘N. Start Co.’, a
discrepancy will be identified when the IRS processes the Form 1099-MISC. This
discrepancy will be included on a CP-2100 notice for that calendar year.
Discrepancies must be researched following a specific procedure and
documentation must be on file to explain any corrections to the university
records.
If at least 80% of the services provided will be reportable, the vendor should be
set up following the methodology that defaults all transactions processed as
reportable. See Attachment 1 for the methodology required in Banner to indicate
reportability. This default can be overridden by the accounts payable office when
processing a transaction that is not reportable. See Attachment 2 for the
methodology required in Banner to remove the flag that indicates reportability.
Reportable payments to vendors set up as not reportable, will require the
accounts payable office to follow the prescribed methodology to mark each
 University of Alaska
Statewide Accounting Manual
No.: P - 116
Date: 12/06/2005
Page: 3 of 14
Title: IRS Form 1099-MISC Procedures
individual transaction as reportable. See Attachment 3 for the methodology
required in Banner to mark the transaction as reportable.
It is the joint responsibility of each MAU’s procurement and accounts payable
offices to assure the information in the financial accounting systems’ vendor files
is current and accurate. Vendors should be encouraged to submit current W-9’s
to assure this is accomplished.
W-9 Retention:
W-9’s must be kept on file for four (4) fiscal years after the last payment is
issued, whether the last payment was reportable or not. Even though one
campus may not have conducted business with the vendor in the last four years
another MAU may have. In these instances a campus may not want to continue
as the holder of the W-9 documentation. Contact the MAU currently doing
business with the vendor to determine if they need the W-9(s) on file for their
retention. It is advisable to keep photocopies until assurance is received from the
other MAU that they have received the W-9 documentation.
Reportable Qualifications:
A vendor payment is considered reportable when the criteria detailed both in 1
and 2 below are met and the payment type is not listed in the Reportable
Exclusions section of this procedure:
1. Payee is not a corporation, except:
a. Medical and health care providers;
b. Vendors receiving payment in cash for fish or other forms of aquatic
life;
c. Attorney’s or law firms;
2. The payment is for one of the types of transactions as described in the
Reportable Payment Types section of this procedure.
As previously stated, if federal income tax has been withheld under the backup
withholding rules, a Form 1099-MISC must be issued regardless of the
aggregate total of payments.
Reportable Exclusions:
The following types of payments are excluded from the 1099-MISC reporting
requirements. However, these payments may be taxable income and the payee
should consult with their tax advisor to make that determination.
1. Utilities such as electricity, gas and water.
2. Telephone, telegraph, and similar items.
3. Merchandise, messenger services, reimbursements, freight and storage.
4. Rent payments to a real estate agent.
 University of Alaska
Statewide Accounting Manual
No.: P - 116
Date: 12/06/2005
Page: 4 of 14
Title: IRS Form 1099-MISC Procedures
5. Business travel reimbursements that have been accounted for in
compliance with the University of Alaska Board of Regents (BOR)
regulations.
6. Scholarship or fellowship grants that do not have a condition that requires
teaching, research or other services for receipt of the grant.
a. Scholarship or fellowship grants that require teaching, research or
other services as a condition for receipt of the grant are considered
wages and must be reported on Form W-2. Contact the respective
MAU’s Human Resources office or the SWOHR for additional
information.
7. Payments to a hospital or extended care facility that is tax-exempt.
8. Payments to a hospital or extended care facility owned and operated by
the United States (or its possessions), a state, the District of Columbia, or
any of their political subdivisions, agencies, or instrumentalities.
The university is required to report all reportable payments made to non-resident
aliens (NRA) on Form 1042-S. Internal procedures may vary between MAU’s so
individuals should contact the person designated at their MAU for information
regarding NRA procedures. Contact SWOHR if the designated person is not
known. SWOHR can also answer questions or provide additional clarification
regarding NRA restrictions and requirements.
Reportable Payment Types:
There are a number of payment types that are reportable. The following list
includes the most common payment types considered reportable. The
information provided is not complete and the absence of a specific type of
payment is not an indicator that the payment type is not reportable. Contact the
Statewide Office of Cost Analysis (SWOCA) for assistance on payment types not
listed in this procedure or see the IRS Instructions for Form 1099-MISC.
Gross proceeds to attorney (AT) – Gross proceeds paid to an attorney or law firm
in connection with legal services, regardless whether the services are performed
for the university.
Medical and health care (MD) – Payments made to physicians, other suppliers or
providers of medical or health care services. If the payment(s) are to be made to
a corporation, rather than to the individual providing the service, the vendor name
should reflect the corporate name, not the individual providing the service for the
corporation.
Non-employee compensation (NC) – Includes, but is not limited to, professional
service fees, commissions, catering, entertainment, prizes and awards for
services performed by a non-employee, honorariums, or other form of
compensation for services performed by an individual who is not an employee of
the university. Payments made for services to subcontractors, sub-recipients,
sub-grantees and sub-awardees. Payment for repairs whether or not the
 University of Alaska
Statewide Accounting Manual
No.: P - 116
Date: 12/06/2005
Page: 5 of 14
Title: IRS Form 1099-MISC Procedures
vendor’s invoice indicates labor and parts separately. The payment for the parts
is not reportable if the parts are invoiced separately.
Amounts paid to employees for excess travel per diem should be included on
their W-2’s. Contact the respective MAU Human Resources office or the SWOHR
for additional information.
Payments made to non-employees for travel per diem amounts in excess of BOR
policy are reportable as non-employee compensation. These payments are to be
processed as follows:
1. If original receipts have been turned in, two Banner invoices must be
created in the financial accounting system. The first Banner invoice should
be a travel invoice, Travel Authorization (TA) or a Travel Expense Report
(TER) for the amount that complies with BOR policy and noted as a
reimbursement on the Banner invoice description line(s). The second
Banner invoice will be for the amount over BOR policy. Do not use a TA or
a TER number in Banner. Note it as payment for excess travel per diem
on the Banner invoice description line(s) and code the Banner invoice as
reportable.
2. If the non-employee has not turned in original receipts, note on the Banner
invoice description line(s) in the financial accounting system the entire
amount as a travel allowance and code the Non-TA/TER Banner invoice
as reportable.
Prizes & awards, other income (PR) – The fair market value of prizes and awards
to non-employees for which no service was required. Payments for all punitive
damages, or any damages that are not due to physical injury or physical sickness
and liquidated damages paid under the Age Discrimination in Employment Act of
1967. Deceased employee wages paid to their estate or beneficiary is classified
as other income.
Information for donated or non-cash prizes and awards is not maintained in the
financial accounting system and must be added manually prior to printing the
Form 1099-MISC for the calendar year being reported. A list of non-cash and
donated prizes and awards from each campus must be forwarded to the SWOCA
quarterly as described in the Non-Cash Benefits, Prizes or Awards section of
this procedure.
Cash & non-cash prizes and awards, except those won as a result of the
purchase of a raffle ticket, received by university employees must be included on
their W-2’s. Contact the respective MAU’s Human Resources office or the
SWOHR for additional information.
See the sections on Non-Cash Benefits, Prizes or Awards and Non-Cash
Benefits, Prizes or Awards Reportable on IRS form W-2G for the reporting
criteria and deadline information.
 University of Alaska
Statewide Accounting Manual
No.: P - 116
Date: 12/06/2005
Page: 6 of 14
Title: IRS Form 1099-MISC Procedures
Rents (RE) – All types of rents such as rental expense paid for office, classroom
or laboratory space (unless paid to a real estate agent), lodging expense paid
directly to an un-incorporated vendor, pasture or land rentals and machine
rentals. If a vendor payment for machine rental includes both the use of a
machine and operator, prorate the payment between machine rental coded as
RE, and the operator portion coded as NC.
Royalties (RY) - Royalties constitute payments for the right to exploit natural
resources, such as oil, gas, timber, sand, gravel, and other intangible property
such as copyrights, trade names, trademarks, franchises, books and other
literary compositions, musical compositions, artistic works, secret processes and
formulas, and patents. Report gross payments, before reduction for fees,
commissions, expenses, or severance and other taxes withheld.
Some royalties are excluded from this payment type, but not from Form 1099
reporting. For example, surface royalties are classified as Rents (RE), working
interest royalties are Non-employee compensation (NC), and report pay-as-cut
timber royalties on Form 1099-S.
See Attachment 4 for a quick reference list of reportable payment types.
The two alpha characters in brackets () following the underlined payment type
are the codes required to classify the payment type on a reportable transaction.
They are called Income Type codes in the financial accounting system.
The Income Type codes mark transactions so they can be summarized into
categories used by the IRS to determine whether the vendor has properly
reported payments. For example, a vendor record was set up when a rental
agreement was established with John Doe. The default payment type on the
vendor record is ‘RE’ which ensures that all rental payments made are coded
appropriately. When the accounts payable office processes a payment for
reportable repair services performed by this vendor, the transaction must be
coded with payment type ‘NC’. The IRS will receive a Form 1099-MISC
overstating the amount of rents paid if this does not occur. As a result, the IRS
may presume John Doe has not properly reported payments received from the
university. The vendor may incur additional expenses to correct this error. See
Attachment 2 for the methodology required in Banner to change the payment
type.
Electronic Funds Transfer Vendor Payments:
When a vendor is issued payment from the university via electronic funds
transfer (EFT) which meets the criteria as detailed in the Reportable
Qualifications section of this procedure the issuing MAU must notify Statewide
 University of Alaska
Statewide Accounting Manual
No.: P - 116
Date: 12/06/2005
Page: 7 of 14
Title: IRS Form 1099-MISC Procedures
Office of Financial Systems (SWOFS). The MAU must provide the following
information to SWOFS within two (2) business days after the vendor’s EFT
payment is issued by Statewide Office of Cash Management:
1. Vendor name (as provided to the IRS and/or SSA)
2. Vendor’s Banner ID number
3. Vendor’s social security number or TIN
4. Reportable payment amount
5. Date of EFT
6. Banner document code of EFT journal voucher
7. Reportable payment type
Non-Cash Benefits, Prizes or Awards:
For the reporting criteria and information deadlines for employee recipients of a
non-cash benefit, prize or award not due to the purchase of a raffle ticket (or
similar device), contact the respective MAU’s Human Resources office or the
SWOHR.
Each MAU must maintain a data information file regarding recipients of a non-
cash benefit, prize or award. This information is to be submitted to the SWOCA
on a quarterly basis. Reports are due on the fifth business day after the end of
the quarter with the exception of the quarter ending December 31. The report for
the final quarter of the calendar year (quarter ending December 31) must be
submitted by the third Friday in December of each calendar year to SWOCA. A
report detailing activity that occurred between the third Friday in and the end of
the month for December is due on the third business day of the following month
(January). Each MAU may establish their own internal deadlines to ensure these
quarterly reporting deadlines to SWOCA are met. The quarterly reports submitted
by the MAU’s to SWOCA are to contain the following information:
1. Date non-cash benefit, prize or award was granted
2. Brief description of benefit, prize or award
3. Fair market value of benefit, prize or award
4. Recipient’s name (as provided to the IRS and/or SSA)
5. Recipient’s mailing address
6. Recipient’s Banner ID number (if applicable)
7. Recipient’s social security number or TIN
8. Recipient’s phone number (if available)
9. US Citizen (Yes or No)
 University of Alaska
Statewide Accounting Manual
No.: P - 116
Date: 12/06/2005
Page: 8 of 14
Title: IRS Form 1099-MISC Procedures
Current Guidelines:
The current IRS backup withholding rate is 28%. The IRS reporting threshold is
$600 or more for all reportable payment types with the following exceptions:
1. The reporting threshold for royalty payments is $10 or more.
2. There is no reporting threshold for the gross proceeds paid to attorneys so
all payments are reportable.
3. There is no reporting threshold for fishing boat proceeds so all payments
are reportable.
This procedure will be reviewed annually and updated if IRS regulations change.
Non-Cash Benefits, Prizes or Awards Reportable on IRS form W-2G:
Recipients of a non-cash benefit, prize or award due to the purchase of a raffle
ticket (or similar device) that meets the IRS reporting threshold will be issued an
IRS form W-2G. The reporting threshold for form W-2G is calculated separately
from the form 1099-MISC threshold. The value of a single raffle ticket is
necessary to determine if the reporting threshold for IRS form W-2G has been
reached. The threshold is defined as any non-cash benefit, prize or award whose
value is $600 or more provided the non-cash benefit, prize or award is at least
300 times the amount of the value of a single raffle ticket (or similar device). Note
that employees that are recipients of a non-cash benefit, prize or award due to
the purchase of a raffle ticket (or similar device) must be included in the listing
described below and should NOT be reported to SWOHR. This type of
benefit/prize/award must be reported on IRS form W-2G not on the employee’s
W-2.
Each MAU must maintain a data information file regarding recipients of a non-
cash benefit, prize or award due to the purchase of a raffle ticket (or similar
device). This information is to be submitted to the SWOCA on a quarterly basis.
Reports are due on the fifth business day after the end of the quarter with the
exception of the quarter ending December 31. The report for the final quarter of
the calendar year (quarter ending December 31) must be submitted by the third
Friday in December of each calendar year to SWOCA. A report detailing activity
that occurred between the third Friday in and the end of the month for December
is due on the third business day of the following month (January). Each MAU
may establish their own internal deadlines to ensure these quarterly reporting
deadlines to SWOCA are met. The quarterly reports submitted by the MAU’s to
SWOCA are to contain the following information:
1. Date non-cash benefit, prize or award was granted
2. Brief description of benefit, prize or award
3. Fair market value of benefit, prize or award
 University of Alaska
Statewide Accounting Manual
No.: P - 116
Date: 12/06/2005
Page: 9 of 14
Title: IRS Form 1099-MISC Procedures
4. Recipient’s name (as provided to the IRS and/or SSA)
5. Recipient’s mailing address
6. Recipient’s Banner ID number (if applicable)
7. Recipient’s social security number or TIN
8. Recipient’s phone number (if available)
9. Recipient’s contribution - the value of a single raffle ticket, etc.
10. US Citizen (yes or no)
 University of Alaska
Statewide Accounting Manual
No.: P - 116
Date: 12/06/2005
Page: 10 of 14
Title: IRS Form 1099-MISC Procedures
Attachment 1
Banner Screen: FTMVEND The Vendor’s name must match the
Social Security Administration (SSA)
or the Internal Revenue Service (IRS)
records EXACTLY.
Abbreviations are not allowable.
Truncate if vendor name exceeds the
space provided.
Click on “Additional Information” tab to input the 1099-MISC vendor information.
Click the arrow in the Income Type field to view a listing of the valid codes
 University of Alaska
Statewide Accounting Manual
No.: P - 116
Date: 12/06/2005
Page: 11 of 14
Title: IRS Form 1099-MISC Procedures
Attachment 2
Banner Screen: FAAINVE for a Vendor setup as Reportable
Note, the 1099 Tax ID field reflects the information from FTMVEND on the Header of form
FAAINVE. The 1099 Vendor box is also checked for this vendor.
When processing payment for non-reportable items to a vendor set-up as reportable, clear all
three fields (1099 Tax ID and 1099 Vendor check box on the Header and the Income Type field
on the Additional Info screen) in FAAINVE. Note that reportable and non-reportable items must
be on separate invoices.
From the menu bar choose Option/Header Additional Information to reveal the Income Type that
will default from FTMVEND. Change the code if the payment is a different type than the default.
See Attachment 4 for a reference list of reportable payment types.
 University of Alaska
Statewide Accounting Manual
No.: P - 116
Date: 12/06/2005
Page: 12 of 14
Title: IRS Form 1099-MISC Procedures
Attachment 3
Banner Screen: FAAINVE for a Vendor NOT setup as Reportable
A vendor to receive a reportable payment, that was not setup as reportable in FTMVEND:
1. Enter the vendor’s TIN in the 1099 Tax ID field.
2. Turned on the 1099 Vendor check box. ( “ ” ).
3. From the menu bar choose Option/Header Additional Information to reveal the Income
Type field. Enter the appropriate code in Income Type field that reflects the kind of
service provided. See Attachment 4 for a reference list of reportable payment types.
 University of Alaska
Statewide Accounting Manual
No.: P - 116
Date: 12/06/2005
Page: 13 of 14
Title: IRS Form 1099-MISC Procedures
Attachment 4
Reference List of IRS 1099-MISC Reportable Payments
The information listed below includes the most common types of reportable payments.
The list is not complete and absence of a specific type of payment is not an indicator
that the payment type is not reportable. See the IRS Instructions for Form 1099-MISC
for additional examples or information on other payment types not listed. Contact
Statewide Office of Cost Analysis with questions or for additional information.
Reportable Payment Type (XX) Example
Crop insurance proceeds (CP) Crop insurance proceeds paid for loss of crops
Fish purchases (NC) – Fish purchases paid in Purchasing fish for resale as part of a trade or
cash for resale business
Fishing Boat Proceeds (FB) – Payments to Proceeds from sale of catch from fishing boat
crew members by owners or operators of
fishing boats including payments of proceeds
from sale of catch
Gross Proceeds Paid to Attorneys (AT) – Gross proceeds paid to an attorney or legal
Gross proceeds paid to an attorney or legal firm as part of a settlement agreement
firm in connection with legal services
Legal Services (NC) – Payments for Fees paid to an attorney for legal work.
professional legal services performed by an
attorney or legal corporation
Medical and Health Care (MD) – Payments to Payments to a physician for Workers
physicians, physicians’ corporation, or other Compensation related medical payments.
supplier of health and medical services
Non-employee compensation (NC) – Professional service fees for accountants,
Payments for services performed for a trade or architects, contractors, subcontractors;
business by people not treated as its honorariums. Prizes and awards for services
employees. performed by a non-employee. Amounts paid
to non-employees for travel per diem in excess
of BOR policy.
Prizes and Awards, Other Income (PR) – FMV of prize from a raffle; travel awards
Prizes and awards to non-employees that are
not for services
Rent (RE) – All types of rents. Office, classroom, laboratory space rental,
lodging and machine rentals.
Royalties (RY) – Royalty payments Royalties paid by a publisher directly to an
author or literary agent or by a literary agent to
an author.
 University of Alaska
Statewide Accounting Manual
No.: P - 116
Date: 12/06/2005
Page: 14 of 14
Title: IRS Form 1099-MISC Procedures
Attachment 5
1099-MISC Official Mailing Address
The address listed in the A/P Default field of the screen in FTMVEND is the official mailing
address for the 1099-MISC.
The Banner system will accept any of the vendor addresses that have been created as the A/P
Default even if it is not the correct address. The system has no way of knowing the correct
address for 1099 mailing purposes. It is necessary for users with access to this form to exercise
caution with their data entry to ensure this field contains the appropriate code so our vendors who
are subject to 1099 reporting will receive their 1099’s in a timely manner.
If the address Type Code and Sequence # listed here does not contain the correct address then
one of two things MUST happen:
1. These A/P Default fields MUST be changed to reflect the Type Code/Sequence# that
contains the correct 1099 address. This action may require the addition of a new address
Type Code and/or Sequence # to this vendor record.
OR
2. The address on the Type Code/Sequence# listed as default must be modified to reflect
the correct 1099 address.
NO EXCEPTIONS