This blog was last updated on June 27, 2021
Many organizations who have 1099 filing requirements point to a common problem: the difficulty of understanding their compliance obligations. Maintaining compliance is essential for businesses to thrive and grow. Therefore, tax information reporting must remain a high priority for internal tax and finance teams. Encountering Limited Compliance Expertise First of all, tax information reporting is a complex and convoluted process that requires extensive research. This is compounded by the fact that most organizations are subject to varying requirements beyond Federal 1099 reporting due to the multiple states and locations where they do business and varying payment. And, for organizations that do not have a dedicated team of compliance experts, this research is an additional task for departments that already have dedicated responsibilities, such as accounts payable, accounts receivable, operations, or finance. Compliance research can easily burden these divisions and create redundancy across the business as time and energy is spent searching multiple websites, interpreting frequent regulatory changes, and communicating this information across the organization.. Moreover, there are also varying withholding rates, deadlines, and thresholds across multiple state jurisdictions. All of this research and communication takes time and energy away from other business-critical responsibilities. Additionally, inefficiencies in gathering compliance research can lead to errors in reporting and penalties, so it is essential that organizations establish a successful strategy to keep their teams and systems up-to-date, especially with penalties more than doubling starting this year: Tax Year 2015! Additionally, organizations often struggle to keep up with new regulatory obligations because they lack the internal resources to implement the changes within their existing systems and processes. Disseminating Compliance Updates Across Multiple Departments Communicating regulatory changes, as well as updating processes and technology, to every affected department is often a huge challenge and impacts many corners of the business. Miscommunication and competing priorities across departments can cause errors, impact the timeliness of reporting information, and eventually lead to penalties. Additionally, multiple departments involved in the reporting process can cause a lack of clear accountability as to who and what department holds primary responsibility for compliance activities and also opens up more opportunities for errors and inaccurate data. Employees can also become over-burdened with multiple responsibilities, negatively impacting employee morale, especially if they are not experts in this field, and/or have many other time-sensitive responsibilities. Dealing with Data and Process Issues Another key challenge involves data and process issues, which includes incorrect data, solicitations, untimely extracts, failing to comply with state reporting, and dealing with withholding situations. These problems are usually caused by a few factors, particularly a lack of data validation (TIN matching), outdated technology, and utilizing manual processes. Using manual processes or outdated systems can lead to errors and penalties due to the inability to easily access, extract, and consolidate data, proactively validate data, reconcile systems, and manage changes and compliance updates. In addition, systems that are not specifically designed to handle tax information reporting are often unable to manage complex processes, such as withholding, state reporting, global reporting, formatting print outputs, and sending electronic transmittals to appropriate state and government agencies. To learn more about how to address these problems and establish best practices to ensure successful tax information reporting compliance, stay tuned and sign up to receive our complimentary best practices report white paper. We’re here to help you get through tax season the right way.
