Having just participated in several recent industry conferences and shows, Convey is more aware than ever that the Tax Information Reporting Industry continues to see constant change in 1099 compliance rules and regulations- Corporate Reporting, Merchant Reporting, Cost Basis Reporting, Foreign Account Reporting (FATCA), Potential Penalty Increases – and the list goes on. 

As of January, 1 2010, it has been a requirement in the state of California to withhold tax on income that was also subject to Federal backup withholding. The logic here is pretty straightforward: if the Federal government sees the need to require withholding because they were not sure if they were going to be able to collect tax in the future, why then should California not act in the same way? In addition, the state has been facing record deficits, and this was a way to increase tax receipts without actually resorting to a tax increase. The law was passed in July 2009 and was scheduled to go into effect starting in January. Of course, most were not prepared to handle the increased withholding.

Recently the IRS offered clarification on some of the rules around TIN Masking. Whatever tax reporting solution you are using or thinking about using needs to be sure to properly handle the exceptions described here.