State of Change: New York Shifts 1099-R Reconciliation from Annual to Quarterly Basis

Clark Sells
July 24, 2018

New York recently changed its requirements for validating and reconciling 1099-R data, providing another example of how states are changing regulations in order collect revenue more accurately and more quickly. Financial institutions will likely need to adjust their processes in response.

Institutions must file a form 1099-R for each person who received a distribution of $10 or more from programs such as profit-sharing or retirement plans, IRAs, annuities, pensions, insurance contracts and survivor income benefit plans.

Move from annual to quarterly reconciling of 1099-R information

Current rules in New York require paying institutions to submit a withholding filing on a quarterly basis to confirm timely and complete payments. In the fourth quarter of the year, payers add 1099-R information for the whole tax year in part C, section D and E of form NYS-45 in order to reconcile withholding payments, returns, and 1099-R information reporting. State revenue officials then review all four quarters of NYS-45 to make sure payments match those reported on form 1099-R.

However, the new regulation, which will take effect in January, will require payers to send 1099-R forms to the State of New York to satisfy part C of each quarterly filing. Essentially, the new rule requires organizations to reconcile 1099-Rs and withholding payments on a quarterly basis rather than on an annual basis.

Bringing accounting and tax departments together with a single solution

That could be a problem for financial institutions. In many operations, the accounting department handles payments and withholding returns, while the tax department deals with 1099-R information reporting. Unfortunately, the two departments often operate in silos, separated from each other due to having to follow different regulatory requirements in different states.

As a result, accounting and tax often fail to collaborate, and they use two different source systems for data. Using separate systems makes reconciling any differences in forms difficult and time-consuming when carried out on an annual basis. The process will be even more complex on a quarterly basis for reporting in the massive New York jurisdiction, as accounting and tax will have to work together both more frequently and more closely.

Payers need to consolidate accounting and tax reporting processes into one unified reporting solution, which will provide a consistent source for form data. A single solution will also enable companies to complete reconciliation and reporting more quickly and accurately, with less effort and using fewer employee resources.

A trend of states streamlining revenue collection

New York is not the first state to shift to requiring quarterly 1099-R reconciliation. California and Maine have had similar regulations in place for years. In a broader trend, states are changing requirements and moving up deadlines in an effort to collect revenue more quickly and accurately. For example, after the IRS moved deadlines for some 1099 forms up for tax year 2017, a group of states did the same. In most states, 1099-MISC with nonemployee compensation and W-2 forms are due by January 31.

With states needing revenue, more changes that bring complexity to the reporting process for payers are likely to emerge.

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Sovos has decades of experience consolidating reporting data and handling change in 1099 reporting processes for clients. Learn more or contact Sovos for more information.

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Clark Sells

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