What's New for 2002

Except as otherwise noted, the following changes are the result of the Economic Growth and Tax Relief Reconciliation Act of 2001 (Public Law 107-16).

Regular gambling withholding.    The regular gambling withholding rate will be 27% (36.98% for certain non cash payments) for reportable payments made in 2002 and 2003.

Backup withholding.    The backup withholding rate will be 30% for reportable payments made in 2002 and 2003.

Electronic payee statements.    Section 401 of the Job Creation and Worker Assistance Act of 2002 (Public Law 107-147) allows issuers, with the consent of the recipient, to furnish, electronically, statements required to be filed under sections 6041 through 6050S. For Forms 1098-E and 1098-T, also see Temporary Regulations section 1.6050S-2T. See part H on page GEN-9.

Martinsburg Computing Center (MCC) Information Reporting Call Site.   The call site has a new toll-free telephone number, 1-866-455-7438. See Information reporting call site on page GEN-2.

Revised title of Form 1099-G.   Form 1099-G is re-titled Certain Government Payments. Distributions of earnings from a qualified tuition program are reported on new Form 1099-Q, not Form 1099-G. See New Form 1099-Q below.

Forms 1099-MSA and 5498-MSA.   Effective after December 21, 2000, the name of medical savings accounts changed to Archer MSAs. For 2002, Forms 1099-MSA and 5498-MSA and the separate instructions reflect the change.

New Form 1099-Q.    The definition of qualified tuition programs includes programs established and maintained by state governments and private eligible educational institutions. New Form 1099-Q is used to report earnings from qualified tuition programs.

Form 1099-R.    The title for distribution code M for box 7 has been changed to Distribution from a Coverdell education savings account (ESA).

Distributions and income tax withholding on distributions from a section 457(b) plan maintained by a state or local government employer are reportable on Form 1099-R and not Form W-2.

Until further guidance is issued, report after-tax contributions included in the total amount rolled over in Box 5, Employee contributions or insurance premiums.

Form 5498.   The title for Form 5498 has been changed to IRA and Coverdell ESA Contribution Information and all the references to Education IRAs have been changed to Coverdell ESAs in the instructions for Forms 1099-R and 5498. The contribution limit for a Coverdell ESA has increased to $2,000. Also, the form and the instructions have been changed to reflect that the amounts reported for Box 11, Coverdell ESA Contributions, reflect contributions made in 2002 and through April 15, 2003, designated for 2002.

Participants who are age 50 or older by the end of the year may be eligible to make catch-up IRA contributions or catch-up elective deferral contributions. The annual IRA regular contribution limit of $3,000 is increased to $3,500 for participants who are age 50 or older. Catch-up elective deferral contributions may be made under a salary reduction SEP (SARSEP) or under a SIMPLE IRA plan. Up to $1,000 in catch-up elective deferrals may be made to a SARSEP, and up to $500 to a SIMPLE IRA plan.

The instructions have been expanded for reporting contributions to IRAs for combat zone participants. Newly designated combat zones are listed.

Form 1098-E.   The instructions have been revised to reflect reporting rules described in final Regulations section 1.6050S-3 (TD 8992, 67 FR 20901), effective for 2002. Box 2 is used to indicate that box 1 includes loan origination fees and/or capitalized interest. However, lenders are not required to report loan origination fees and/or capitalized interest for loans made before January 1, 2004. See Regulations section 1.6050S-3(e)(1). Also, the Economic Growth and Tax Relief Reconciliation Act of 2001 has eliminated the 60-month limitation (the covered period) during which interest paid on a qualified education loan is deductible.

Form 1098-T.   The form and instructions have been revised to reflect reporting rules described in Proposed Regulations section 1.6050S-1 (67 FR 20923). Eligible educational institutions are not required to, but may, use these rules in preparing Form 1098-T for 2002. Eligible educational institutions may report either the net amount of payments received (box 1) or the net amount billed (box 2), for qualified tuition and related expenses during the calendar year. Only adjustments made to payments received, or amounts billed, for qualified expenses that were reported in a prior year will be reported separately (box 3). Scholarships and grants will be reported in box 4 and only adjustments made during the year to scholarships reported in a prior year are reported separately (box 5). If the amount reported in box 1 or 2 includes payments received or amounts billed for an academic period beginning in January through March of 2003, box 6 must be checked. An insurer may report reimbursements and refunds of qualified tuition and related expenses from an insurance contract in box 7.

If you ordered (or downloaded from the IRS Web Site) copies of Forms 1099-OID, 1099-LTC, and 5498 prior to February 25, 2002, the instructions have been changed as a result of the Economic Growth and Tax Relief Reconciliation Act of 2001. Similarly, the Instructions for Forms 1099-R and 5498 have also changed after the above date. To order, see How To Get Forms and Publications on page GEN-3.

Items You Should Note

Photographs of Missing Children

The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in instructions on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.

Available Products

To help make it easier for you to get only the information you need to complete the Forms 1099, 1098, 5498, and W-2G you file, we provide general and specific form instructions as separate products. The products you should use for 2002 are these General Instructions for Forms 1099, 1098, 5498, and W-2G, which contain general information concerning Forms 1099, 1098, 5498, and W-2G, and for instructions on completing a specific form, get the instructions you need from the following list of separate instructions:

• Instructions for Forms W-2G and 5754
• Instructions for Form 1098
• Instructions for Forms 1098-E and 1098-T
• Instructions for Forms 1099-A and 1099-C
• Instructions for Form 1099-B
• Instructions for Form 1099-DIV
• Instructions for Form 1099-G
• Instructions for Forms 1099-INT and 1099-OID
• Instructions for Form 1099-LTC
• Instructions for Form 1099-MISC
• Instructions for Forms 1099-MSA and 5498-MSA
• Instructions for Form 1099-PATR
• Instructions for Form 1099-Q
• Instructions for Forms 1099-R and 5498
• Instructions for Form 1099-S

If you prefer to have all the specific and general instructions in one booklet, the 2002 Instructions for Forms 1099, 1098, 5498, and W-2G is also available. See How To Get Forms and Publications on page GEN-3.

Reporting Backup Withholding on Forms 1099 and W-2G

If you backup withhold on a payment, you must file the appropriate Form 1099 or W-2G with the IRS and furnish a statement to the recipient to report the amount of the payment and the amount withheld. This applies even though the amount of the payment may be below the normal threshold for filing Form 1099 or W-2G. See Backup Withholding on page GEN-3.

Form 945 - Withholding Tax Return

Report backup withholding, voluntary withholding on certain government payments, and withholding from gambling winnings, pensions, annuities, IRAs, military retirement, and Indian gaming profits on Form 945, Annual Return of Withheld Federal Income Tax. Generally, file Form 945 for 2002 by January 31, 2003. Any income tax withholding reported on Form W-2, Wage and Tax Statement, including withholding on distributions to plan participants from nonqualified plans, must be reported on Form 941, Employer's Quarterly Federal Tax Return. For more information, including the deposit requirements for Form 945, see the separate Instructions for Form 945 and Circular E, Employer's Tax Guide (Pub. 15).

Use Form 1096 To Send Forms to the IRS

You must send Copies A of all paper Forms 1099, 1098, 5498, and W-2G to the IRS with Form 1096, Annual Summary and Transmittal of U.S. Information Returns. Instructions for completing Form 1096 are contained on Form 1096. Also see part D on page GEN-7.

Substitute Statements to Recipients

If you are using a substitute form to furnish statements to recipients (generally Copy B), be sure your substitute statements comply with the rules in Pub. 1179, Rules and Specifications for Private Printing of Substitute Forms 1096, 1098, 1099, 5498, and W-2G. Pub. 1179, which is revised annually, explains the requirements for format and content of substitute statements to recipients. If you are using a substitute form to furnish information to recipients, it must comply with the requirements in Pub. 1179.

All substitute statements to recipients must contain the tax year, form number, and form name prominently displayed together in one area of the statement. For example, they could be shown in the upper right part of the statement.

Guide to Information Returns

See the chart on pages GEN-15 and GEN-16 for a brief summary of information return reporting rules.

Need Help?

Information reporting call site.   If you have questions about reporting on Forms 1096, 1098, 1099, 5498, W-2, W-2G, and W-3, you may call a new toll-free number, 1-866-455-7438. You may still use the original telephone number, 304-263-8700 (not toll free). For TTY/TDD equipment, call 304-267-3367 (not toll free). The call site can also be reached by e-mail at [email protected]. The hours of operation for the call site are Monday through Friday from 8:30 a.m. to 4:30 p.m., Eastern time.

For other tax information, call 1-800-829-1040; for TTY/TDD equipment, call 1-800-829-4059.

Internal Revenue Bulletin.   The Internal Revenue Bulletin (IRB), published weekly, contains newly issued regulations, notices, announcements, legislation, court decisions, and other items of general interest. You may find this publication useful to keep you up to date with current developments. See How To Get Forms and Publications on page GEN-3.

Unresolved Tax Issues

If you have attempted to deal with an IRS problem unsuccessfully, you should contact the Taxpayer Advocate. The Taxpayer Advocate independently represents your interests and concerns within the IRS by protecting your rights and resolving problems that have not been fixed through normal channels.

While Taxpayer Advocates cannot change the tax law or make a technical decision, they can clear up problems that resulted from previous contacts and ensure that your case is given a complete and impartial review.

Your assigned personal advocate will listen to your point of view and will work with you to address your concerns. You can expect the advocate to provide:

• A fresh look at a new or on-going problem.
• Timely acknowledgement.
• The name and phone number of the individual assigned to your case.
• Updates on progress.
• Timeframes for action.
• Speedy resolution.
• Courteous service.

When contacting the Taxpayer Advocate, you should provide the following information:

• Your name, address, and employer identification number (EIN).
• The name and telephone number of an authorized contact person and the hours he or she can be reached.
• The type of tax return and year(s).
• A detailed description of the problem.
• Previous attempts to solve the problem and the office that had been contacted.
• A description of the hardship you are facing (if applicable).

You may contact a Taxpayer Advocate by calling a toll-free number, 1-877-777-4778. Persons who have access to TTY/TDD equipment may call 1-800-829-4059 and ask for Taxpayer Advocate assistance. If you prefer, you may call, write, or fax the Taxpayer Advocate office in your area. See Pub. 1546, The Taxpayer Advocate Service of the IRS, for a list of addresses and fax numbers.

How To Get Forms and Publications

Because the IRS processes paper forms by machine (optical character recognition equipment), you cannot file with the IRS Form 1096 or Copy A of Forms 1098, 1099, or 5498 that you print from the IRS Web Site or the CD-ROM.

Personal computer.   You can access the IRS Web Site 24 hours a day, 7 days a week, at www.irs.gov to:

• Download forms, instructions, and publications.
• See answers to frequently asked tax questions.
• Search publications on-line by topic or keyword.
• Send us comments or request help by e-mail.
• Sign up to receive local and national tax news by e-mail.

You can also reach us using File Transfer Protocol at ftp.irs.gov.

CD-ROM.   Order Pub. 1796, Federal Tax Products on CD-ROM, and get:

• Current year forms, instructions, and publications.
• Prior year forms, instructions, and publications.
• Frequently requested tax forms that may be filled in electronically, printed out for submission, and saved for recordkeeping.
• The Internal Revenue Bulletin.

Buy the CD-ROM on the Internet at www.irs.gov/cdorders from the National Technical Information Service (NTIS) for $21 (no handling fee) or call 1-877-CDFORMS (1-877-233-6767) toll free to buy the CD-ROM for $21 (plus a $5 handling fee).

By phone and in person.   You can order forms and publications 24 hours a day, 7 days a week, by calling 1-800-TAX-FORM (1-800-829-3676). You can also get most forms and publications at many IRS offices, post offices, and libraries.

Backup Withholding

Interest, dividends, rents, royalties, commissions, nonemployee compensation, and certain other payments (including broker and barter exchange transactions, reportable gross proceeds paid to attorneys, and certain payments made by fishing boat operators) may be subject to backup withholding at a 30% rate. To be subject to backup withholding, a payment must be a reportable interest or dividend payment under section 6049(a), 6042(a), or 6044 (if the patronage dividend is paid in money or qualified check), or an other reportable payment under section 6041, 6041A(a), 6045, 6050A, or 6050N. If the payment is one of these reportable payments, backup withholding will apply if:

1. The payee fails to furnish his or her taxpayer identification number (TIN) to you,
2. For interest, dividend, and broker and barter exchange accounts opened or instruments acquired after 1983, the payee fails to certify, under penalties of perjury, that the TIN provided is correct,
3. The IRS notifies you to impose backup withholding because the payee furnished an incorrect TIN (B notice),
4. For interest and dividend accounts or instruments, you are notified that the payee is subject to backup withholding (under section 3406(a)(1)(C), C notice), or
5. For interest and dividend accounts opened or instruments acquired after 1983, the payee fails to certify to you, under penalties of perjury, that he or she is not subject to backup withholding under 4 above.

Except as explained in 2 above, reportable other payments are subject to backup withholding only if 1 or 3 above applies.

Some payees are exempt from backup withholding. For a list of exempt payees and other information, see Form W-9, Request for Taxpayer Identification Number and Certification, and the separate Instructions for the Requester of Form W-9.

Backup withholding will not apply to the following:

1. Real estate transactions reportable under section 6045(e),
2. Foreclosures and abandonments reportable under section 6050J,
3. Canceled debts reportable under section 6050P,
4. Distributions from Archer MSAs,
5. Long-term care benefits,
6. Distributions from any retirement account, including IRAs,
7. Section 404(k) distributions from an employee stock ownership plan (ESOP),
8. Fish purchases for cash reportable under section 6050R,
9. Unemployment compensation,
10. State or local income tax refunds, and
11. Qualified tuition program earnings.

When to apply backup withholding.   Generally, the period for which the 30% should be withheld is as follows:

1. Failure to furnish TIN in the manner required.   Withhold on payments made until the TIN is furnished in the manner required. Special backup withholding rules may apply if the payee has applied for a TIN. The payee may certify to this on Form W-9 by noting Applied For in the TIN block and by signing the form. This form then becomes an awaiting-TIN certificate, and the payee has 60 days to obtain a TIN and furnish it to you. If you do not receive a TIN from the payee within 60 days and you have not already begun backup withholding, begin backup withholding and continue until the TIN is provided.

The 60-day exemption from backup withholding applies only to interest and dividend payments and certain payments made with respect to readily tradable instruments. Therefore, any other payment, such as nonemployee compensation, is subject to backup withholding even if the payee has applied for and is awaiting a TIN. For information about whether backup withholding applies during the 60-day period, see Regulations section 31.3406(g)-3.

2. Notice from the IRS that payee's TIN is incorrect (B notice).   You may choose to withhold on any reportable payment made to the account(s) subject to backup withholding after receipt of the B notice, but you must withhold on any reportable payment made to the account more than 30 business days after you received the B notice. Stop withholding within 30 days after you receive a certified Form W-9 (or acceptable substitute).

The IRS will furnish a notice to you, and you are required to promptly furnish a copy of such notice, or an acceptable substitute, to the payee. For further information, see Regulations section 31.3406(d)-5 and Rev. Proc. 93-37, 1993-2 C.B. 477.

If you receive two incorrect TIN notices within 3 years for the same account, follow the procedures in Regulations section 31.3406(d)-5(g) and Rev. Proc. 93-37.

3. Notice from the IRS that payee is subject to backup withholding due to notified payee underreporting (C notice).   You may choose to withhold on any reportable payment made to the account(s) subject to backup withholding after receipt of the C notice, but you must withhold on any reportable payment made to the account more than 30 business days after you receive the C notice. The IRS will notify you in writing when to stop withholding, or the payee may furnish you a written certification from the IRS stating when the withholding should stop. In most cases, the stop date will be January 1 of the year following the year of the notice.

You must notify the payee when withholding under this procedure starts. For further information, see Regulations section 31.3406(c)-1(d).

4. Payee failure to certify that he or she is not subject to backup withholding.   Withhold on reportable interest and dividends until the certification has been received.

For exceptions to these general timing rules, see section 3406(e).

For information about backup withholding on gambling winnings, see the separate Instructions for Forms W-2G and 5754.

Reporting backup withholding.   Report backup withholding on Form 945. For more information, see the Instructions for Form 945. Also, report backup withholding and the amount of the payment on Forms W-2G, 1099-B, DIV, G, INT, MISC, OID, or PATR even if the amount of the payment is less than the amount for which an information return is normally required.

Additional information.   For more information about backup withholding, see Pub. 1679, A Guide to Backup Withholding for Missing and Incorrect Name/TINs, and Pub. 1281, Backup Withholding on Missing and Incorrect Name/TINs (including Instructions for Reading Tapes).

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