Starting now, taxpayers who file a 1099 with the IRS must also file the form with the State of Michigan.

On November 25, 2003, Governor Jennifer Granholm signed Senate Bill 770, which amends the Michigan Income Tax Act to require any person who must file a 1099-MISC information return under the Internal Revenue Code with the federal government to also file the form with the Michigan Department of Treasury.

The new law requires 1099-MISC forms to be filed with the Department by January 31 or the date required by the Internal Revenue Code, whichever is later. A penalty of $50 will be imposed for each 1099-MISC not filed by the due date.

Additionally, if the address of the taxpayer receiving the form 1099-MISC is within a city that imposes its own city income tax, then the taxpayer must file a copy of the 1099-MISC with that city as well.

The effective date of the enactment is November 26, 2003 and applies to 1099-MISC forms due on or after that date.
Therefore, all 1099-MISC forms reporting payments made during the entire 2003 calendar year must be filed with the state as a result of the new law.

The 1099-MISC forms should be submitted to the Department of Treasury along with the taxpayer’s Annual Sales, Use and Withholding Taxes Annual Return (Form 165) by February 28, which is the Michigan due date for the annual return. March 1 is the due date for 1099s to be filed with the federal government as prescribed by the Internal Revenue Code.

Federal law requires businesses to file 1099s for certain payments made to other businesses and individuals during the calendar year that would not be considered wages and reported on a W-2 form. There are currently 16 types of 1099 forms provided by the IRS for various types of payments.

The 1099-MISC form is designed to report miscellaneous business income paid to non-employees. The form must be filed for each person who received payments of more than $600 for rents, services (including parts and materials), prizes and awards, or other income payments. The 1099-MISC is the typical method of reporting payments made to sub-contractors.

Income paid to contractors has been an area of concern for underreporting by the IRS as well as state and local governments due to the nature of the payments and inherent lower level of scrutiny these payments receive, as compared with wages paid to employees.

The purpose of S.B. 770 is to decrease the potential for tax avoidance in Michigan by taxpayers not reporting miscellaneous income on their Michigan tax returns. The House Fiscal Agency believes the new filing requirement will have minimal fiscal impact for the state and local governments because the Michigan Department of Treasury already has methods in place to help identify income reported to the IRS and not reported to Michigan.

However, an analysis by the Senate Fiscal Agency indicates the bill should have an impact with certain types of tax avoidance, such as uncovering income paid to non-resident contract workers temporarily working in Michigan. 

[Editor's Note: To address some issues related to this new regulation, a "Frequently Asked Questions" document has been created. Read it on the MACPA web site by following this link: http://www.michcpa.org/pressroom/full.asp?aid=2876.]

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