REPORTABLE PAYMENT IDENTIFICATION AND CLASSIFICATION REQUIREMENTS - 8422.190-MAY-2018

(Revised: 05/2018)

The four items below provide the guidelines for the reportable payment requirements.

  1. Payee Data Record form, STD. 204. See section 8422.190 Illustrations 1 and 2.

    The purpose of the STD. 204 form is to obtain payee information for income tax reporting and to ensure tax compliance with federal and state law. The STD. 204 is required for any non-governmental entity or individual entering into a transaction that may lead to a payment from the state. Therefore, a completed, dated, and signed STD. 204 with handwritten or electronic signature must be on file with the state before payments are disbursed. Electronic signatures must meet the requirements of the Secretary of State, California Code of Regulations, title 2 section 22003. The original form must also be available and provided upon request. For more information on electronic signatures, refer to California Civil Code sections 1633.1 through 1633.17.

    A completed STD. 204 is necessary to determine what payments are reportable by the payee and must be attached to each contract. For non-contract transactions, a completed STD. 204 must be retained in the department’s business services or accounting office. A completed STD. 204 is also required for non-state employees authorized to receive travel expense reimbursements directly from departments before the reimbursement is paid.

    The payee will provide the following information on the STD. 204 in accordance with Internal Revenue Code (IRC) section 6109(a) and California Revenue and Taxation Code (R&TC) sections 18646 and 18661. Instructions for the payee are provided on page 2 of the form.

    1. Complete legal business name and address of the payee doing business with the state. The business owner's full name is required if the business is a sole proprietorship or a single member Limited Liability Company (LLC). The name of the business or owner should match the name on the payee’s income tax return.
    2. Payee entity type and the Taxpayer Identification Number (TIN). Payees must provide one of the following applicable TINs:
      1. Social Security Number (SSN)
      2. Individual Taxpayer Identification Number (ITIN)
      3. Federal Employer Identification Number (FEIN)

        The TIN for individuals, sole proprietors, and single member LLCs (disregarded entities) is the SSN. Individuals who do not have an SSN and are not eligible for one provide their ITIN. The ITIN is a tax processing number issued by the Internal Revenue Service (IRS) through the W-7 application process. For all other payees, including LLCs treated as partnerships or corporations, the TIN is the FEIN.  Refer to the IRS website for more information on TINs.

    3. Residency status of the payee by indicating resident or nonresident. The STD. 204 instructions on page 2 provide information for making this determination. Pursuant to R&TC section 18662, nonresidents may be subject to state withholding at the standard rate for payment(s) that exceed $1,500 in a calendar year unless a verification authorizing a reduced withholding amount or a waiver approved by the Franchise Tax Board (FTB) is attached to the STD. 204. To determine if withholding is required and the standard withholding rate, refer to the decision charts on the FTB website at https://www.ftb.ca.gov/forms/misc/1024.html. For further information on nonresident withholding, see SAM section 8422.195.

      Box 1

      Rent of real or personal property.

      Box 2

      Royalties.

      Box 3

      Other income (including prizes, awards, and punitive damages not involving physical injury or sickness).

      Box 4

      Federal income tax withheld (backup withholding).

      Box 6

      Medical and health care payments, including doctors, medical corporations, dentists, audiologists, optometrists, psychologists, psychiatrists, etc.

      Box 7

      Nonemployee compensation.

      Prizes and awards for services rendered (e.g. bonuses not reported in W-2).

      Commissions to non-employees. Commissions to real estate brokers. Consulting fees to non-employees. Professional fees.

      Payments to entertainers.

      Construction service contracts (roads, streets, buildings, etc.).

      Box 14

      Attorney Fees - Gross Proceeds pursuant to IRC section 6045(f); that consist of (1) amounts intended to be paid to the client; and (2) amounts intended for the attorney.

      Box 16

      State income tax withheld.

       

    4. Complete name, title, e-mail address, telephone number, date, and handwritten or electronic signature of the payee’s authorized representative. This signature certifies the accuracy of the information provided. All data on the submitted STD 204 must be unalterable including the signature.

    If the STD. 204 is not completed by the payee, then payment to the payee shall be reduced by the following:

    • Federal backup withholding at a rate determined by the IRS. For more information, refer to the IRS website http://www.irs.gov/ for IRS Publication 1281, Backup Withholding for Missing and Incorrect Name/TIN(S). Additional resources include IRS Publication 15, Employer’s Tax Guide, and IRS Publication 17, Your Federal Income TaxFor questions about federal backup withholding or information reporting, contact the IRS’ Information Reporting Program Customer Service Section at (866) 455-7438.
    • State backup withholding of 7 percent pursuant to R&TC section 18664.
    • Payment may be subject to state income tax withholding if the payee indicates ”nonresident” on the STD. 204 per item #1c listed above. Under circumstances where both backup withholding and nonresident withholding apply, only backup withholding shall be required. Refer to FTB Publication 1017 at https://www.ftb.ca.gov/ for further information.

      State departments are liable for amounts not withheld, under-withheld, or not remitted to the FTB pursuant to R&TC sections 18662 (d) and 18668. Information on federal and state tax withholdings is provided in SAM section 8422.195. In addition, state departments are responsible for sending additional requests to those payees that fail to provide their TIN, as described in SAM section 8422.193.

  2. Payments that must be reported.
    1. Payments for services to medical corporations, legal service corporations, and non-corporate entities (except governmental units) will be reported. These may include: fees, commissions, other forms of compensation for services (to the extent not reported on Form W–2), interest, rent, royalties, prizes, awards, and "gross proceeds" connected with legal services.
    2. Payments are reportable if all three of the following points can be answered yes:
      1. Payment is within the conduct of trade or business.
      2. Payee is not a corporation. (Note: All payments to medical corporations for services provided and attorneys or legal services corporations including gross proceeds are reportable).
      3. Payment is for rents, prizes, awards, or services (including construction contract services) rendered and not solely for merchandise.
    3. The following identifies (1) the various recurring payment types that are required to be reported and (2) the box on the Form 1099 MISC in which they are to be reported:
    4. Interest (other than tax exempt government obligations; interest by or to nonresident aliens and most foreign entities; corporations; tax-exempt retirement plans, custodians and nominees, brokers, registered dealers in securities and commodities, and U.S. state governments, including their subdivisions and wholly- owned departments and instrumentalities) must be reported on Form 1099-INT. Form 1099-INT payments are not subject to state backup withholding.
  3. Payments that are not reported.
    1. Payments to governmental entities.
    2. Payments to most corporations for goods and services. However, payments to medical corporations and legal corporations are reported.
    3. Payments for merchandise (including freight, storage, and similar charges) and utilities (such as electricity, gas, oil, water, telephone, telegraph, and similar services).
    4. Payments of non-punitive damages (for physical injury or sickness) awarded by the courts. However, interest payments are reportable.
    5. Salaries and wages paid from the State Payroll Revolving Fund or otherwise reported on Form W–2.
    6. Scholarships, fellowships, and stipends (except where such payments are subject to the performance of services).
    7. Per diem and travel expense reimbursements are generally not considered reportable income. Refer to IRS Instructions for Form 1099-MISC on nonemployee compensation.
  4. Payments that include reportable and non-reportable items.

When a payment to an individual includes both reportable and non-reportable items, state departments usually have the option of reporting the total payment or only the reportable portion. If the agreement is only for a lump sum, then the full amount will be reported (including gross proceeds paid to an attorney in connection with legal services). However, when a payment includes both interest and non-reportable principal, only the interest will be reported. When a payment to an external consultant includes a stated amount for travel expenses, per diem, or other expenses, as well as an amount for services, the total amount will be reported.

Questions regarding the determination of reportable payments and/or the use of STD. 204 should be directed to the Franchise Tax Board, Information Reporting Unit, at (916) 845–6304.

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