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Tax information reporting in the United States is a requirement for organizations to report wage and non-wage payments made during their trade or business to the Internal Revenue Service (IRS). This area of government reporting and corporate responsibility is continuously growing, carrying with it many regulatory requirements established by the federal government and the states.
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The tax information return most familiar to the greatest number of people is the Form W-2, which reports wages and other forms of compensation paid to employees. There are also many forms used to report non-wage income, and to report transactions that may entitle a taxpayer to take a credit on an individual tax return. These non-wage forms are the Forms 1099 (of which there are 16 types), Forms 1098 (of which there are four types), and Forms 5498 (of which there are three types).
These are only a few of the federal forms. States have many equivalent forms and reporting requirements. Taken together, these tax information reporting forms touch hundreds of millions of individuals and businesses, and require a large time commitment on the part of businesses, nonprofit organizations, and educational institutions to administer, prepare and file.
In its continual effort to enforce the tax laws and identify unreported and under-reported income, the IRS uses tax information returns in electronic cross-matching against income tax returns. Because of this reliance on receiving information returns from the payers of income, the IRS administers a system of assessing monetary penalties, which can be severe, on businesses and other entities that do not file all of the information returns they are required to file, or file the returns with errors that make it more difficult for the IRS to identify the taxpayers who received the income.
An increasing amount of attention, and government enforcement, is being focused on tax information reporting as the United States Congress and the federal administration seek ways to close the “tax gap” of over $300 billion annually that would be collected by the federal government if all income were reported by U.S. individuals and businesses.
Current proposals to the regulations include tax withholding on payments to independent contractors, a requirement for credit card companies to report to the IRS the gross receipts for businesses that accept their cards, and the elimination of corporate exemption to 1099 reporting.