By Teena A. Takata, CPA
| For
All Business Clients – Information Returns – New January 2001
Requirements for California Employers By Teena A. Takata, CPA |
|
Starting
January 1, 2001 (not so far away), all of your independent contractors who
usually receive 1099MISC’s for services rendered to your firm need to be
reported to the Employment Development Department (EDD) on their new form DE
542. The contractors must be
reported within 20 days of the later the date they receive payments totaling
$600 or more, or the date a contract is entered into that provides for payments
over $600 during the year. The form
also requests start date of contract, amount of contract, contract expiration
date, and has a check box for “ongoing contract”.
This
reporting requirement is similar to the requirement for wage employees, to
enable the state to better locate delinquent child support payers.
Some
special rules are that contractors with out-of-state addresses still must be
reported to the California EDD. Another
special rule is that a business owner with no employees must still file the
report, and simply uses their social security number or federal employer
identification number to identify the employer.
These,
and other rules are at the EDD’s website at http://www.edd.ca.gov/txicr.htm.
Special
Rules for Information Returns for Payments to Attorneys
Starting
for payments made in 2001, payments made to attorneys, including settlement
payments that show the attorney and client’s name, as well as payments that
show only the clients name, but are delivered to the attorney’s office, also
will have 1099MISC’s issued.
These
1099’s must be filed even if the recipient-attorney is a corporation.
The requirement for these 1099’s is also unique, in that the recipient
is not the sole determining factor to consider when deciding whether a 1099MISC
is to be issued. In the case of
these 1099’s, where a payment is delivered to an attorney’s office,
and the attorney may receive a portion of that check, then
a 1099 is to be issued to the attorney.
Most
of our clients will not be issuing settlement payments to attorneys.
However, all attorney payments from and after $600 per year will need
1099’s issued for year 2001 payments, even where the law firm is a corporation
and previously did not receive a 1099.
Our clients who are attorneys should expect to be asked for their tax
identification numbers frequently for payments being made to them in 2001, and
should not object when they receive 1099’s show settlement amounts as well as
the legal fees.
These
rules were originally supposed to be in effect for the year 2000, but were
postponed to first be effective for payments made in 2001.
If
a law firm splits a fee and pays another law firm part of the fee, they should
issue a 1099MISC to that firm representing the amount of the legal fee paid to
the other firm.
The
final item to note in this area is that, since “all 1099MISC” recipients are
to reported to the EDD under their new reporting rules for 2001, you will need
to ensure you include your law firm on the EDD reports!
By
Teena A. Takata, CPA
http://www.besttax.com
Please
note, the information above is subject to change, and by January 1, 2001, we may
have further postponements, or changes to the rules shown above (especially for the
attorney 1099MISC reporting rules). Please consult with your tax advisor
and/or the EDD for updated information.
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| Because It's The Right Thing To Do. | ||
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Last modified: November 08, 2002