Tax Reportable Payments – Processing and Reporting (2024)

Per the Internal Revenue Service (IRS), tax reportable payments must be made through a payment mechanism that captures federally mandated tax reporting information for tax reporting at the end of the calendar year. Tax reportable payment account codes includes services, medical services (including corporations), legal settlements, rents, royalties, human subjects, and prizes and awards. Please review the list of tax reportable payment account codes in the document at (1099-MISC and 1042-S Tax Reportable Payments by Account Codes).

In order for the information to be captured for the federally mandated tax reporting at the end of the calendar year, all tax reportable payments to non-employees must be processed through either of the following mechanisms:

What account codes to use to process tax reportable payments

Tax reportable account codes to be used are based on the type of payment being made. A list of the account codes, the expense description, and whether or not the payment is tax reportable is detailed at 1099-MISC and 1042-S Tax Reportable Payments by Account Codes.

Making and reporting payments to groups other than the service provider

Tax reportable payments (services, awards, royalties, etc.) must be made and tax reported to the person or entity that performed the services, earned the award, is the owner of the royalty, etc. The only exception:

When there is an official written signed contact whereby the individual performing a service(s) is a representative of an entity (company, corporation, etc.) and the payment and tax reporting are to be made to the entity for the individual’s service(s).

Tax reportable payments (services, awards, royalties, etc.) cannot be donated to a charitable organization by the UW in lieu of paying the payment owner. Tax reportable payments must be made, and tax reported to the person or entity that performed the services, earned the award, is the owner of the royalty, etc.

Resolving tax issues prior to payment

Before payment is requested, it is important individuals are informed of the possibility taxes may be withheld and payments may be reported to the Internal Revenue Service and the Wisconsin Department of Revenue.

An Important Tax Information Guide webpage summarizes the potential tax implication of payments to individuals and should be shared with all individuals to whom you make payments for services, rents, royalties, prizes, or awards. Individuals with questions can be referred to their Dean’s Office or the Accounting Service Tax Compliance Manager.

Backup withholding for tax reportable payments to U.S. tax residents

Explanation of backup withholding

Government entities that make certain payments are required to withhold income tax of 24% from these payments if the payee is not exempt from backup withholding and fails to furnish correct taxpayer identification number (TIN). Backup withholding does not apply to wages or pension payments.
“Missing” Taxpayer Identification Number: A taxpayer identification number is considered “missing” whenever (1) the TIN is not provided, (2) the TIN has more or less than nine digits, or (3) the TIN includes an alpha character in one or more of its nine positions.
IRS Publication 15 provides additional information regarding which payments are subject to backup withholding.

Payments potentially subject to backup withholding include interest, dividends, rents, royalties, nonemployee compensation, and certain other payments, including broker and barter exchange transactions.

Tax reportable payments to U.S. residents (non-employee services, prizes and awards, rents, and royalties) are generally not subject to federal tax withholding. However, withholding will apply at the rate of 24% (Backup Withholding) if any of the following apply:

Payment recipient fails to provide a U.S. Taxpayer Identification Number (Social Security Number (SSN), Individual Taxpayer Identification Number (ITIN), Federal Employer Identification Number (FEIN or EIN),
Internal Revenue Service notifies Accounting Services to begin withholding for the taxpayer due to incorrect U.S. Taxpayer Identification Number, or
IRS W-9 form is not completed, signed, and submitted prior to the payment

The State of Wisconsin does not require backup withholding when the recipient’s U.S. Taxpayer Identification Number is not provided. However, withholding of state tax may apply to payments made for entertainment or public speaking services. See the Entertainers webpage for details.

How to complete the PIR when 24% backup withholding is required

Complete the Payment to Individual Report (PIR) or Direct Payment (DP) Form
On the “Enter Payment Information” tab of the digital form:
- In the Purpose of Payment section, in addition to the text explaining the business purpose for the payment, enter the reason for withholding the 24% backup withholding. For example, “Payment recipient refused to provide an SSN.”
- In the Payee Information section, select “Yes” for the third question “Is the payee a performer or public speaker who is receiving at least $7,000 and is not a WI resident?”
  This will add the Entertainer Tax Withholding section will be added (row 67, after the Payee Mailing Address section), and will add the Wisconsin Department of Revenue section to the DP/PIR form.
- In the Entertainer Tax Withholding section, select “Yes” for “Does the payee have a DOR letter granting a rate lower than 6%?”
- Also in the Entertainer Tax Withholding section, enter “24” for the percentage granted by the DOR letter.
  This will calculate the backup tax withholding amount and also enter the funding string(s) for you in the DOR section.
On the printed DP/PIR form:
- In the box with the words “Dept of Revenue”, please cross out the words “Dept of Revenue” and enter the words “University of Wisconsin System”. Also, on the right side of the box, cross out the number “514788” and enter the number “507013”.
- You can ignore the W-9 and WT-11 forms in the Required Forms section. These forms are not required for payments with Backup Withholding.
Process the payment form using the normal UW procedures. Once the payment form has all the required approvals please forward it directly to the Tax Compliance Office (Jose A. Carus, Jr., Tax Compliance Manager, 21 N. Park Street, Suite 5301, Room 5352, Madison, WI 53715-1218).

Refunds of over withholding

If the individual believes taxes were withheld from a payment in error, he or she should be instructed to contact the Accounting Services Tax Compliance Office at (608) 262-0582. If it is determined that taxes were withheld in error, the Accounting Services Tax Compliance Office will issue a refund check to the individual.

EXCEPTION: If the error is found after the end of a calendar year that year or for a prior calendar year payment, it will not be possible for the Accounting Services Tax Compliance Office to obtain a refund for the overpayment from the IRS and issue a check to the individual. The individual would then be required to file a tax return and obtain a refund directly from the IRS. It is, therefore, very important that vendors contact Accounting Services Tax Compliance regarding potential errors immediately especially when payment is made near the end of a calendar year. These errors should be reported to the Accounting Services Tax Compliance Office no later than December 31.