Tax Law Changes Drive Higher Error Rate on 1099s
The Securities and Industry Association says that 9.5 percent of dividend tax forms sent by major Wall Street firms this year were wrong.
The error rate is usually 5 to 8 percent, the Washington trade group says, but the new tax law created difficulties in reporting the corporate-dividends tax rate correctly this year. Under the 2003 Jobs and Growth Tax Relief Reconciliation Act, the rate was reduced from a high of 38.6 percent to 15 percent.
For dividends to qualify for the reduced 15 percent rate, an investor had to hold the shares for more than 60 days during the 120-day period that surrounds the ex-dividend date, the Wall Street Journal reported. That's the day on which a share no longer carries the right to receive the most recently declared dividend.
The 15 percent tax rate does not apply to interest payments from bonds or dividends from borrowed shares.
The 9.5 percent error rate — reported through February — was gathered from a voluntary survey of SIA member firms, which represent 38 million customers. Patricia McClanahan, SIA's vice president for tax policy, expects that figure will rise "a couple more percentage points" when complete data from March and April are collected this year.
The firms were not identified. Some firms received a one-month extension from the Internal Revenue Service to get the dividend data right, so the error rate isn't directly comparable to prior years.
Taxpayers are being advised to refile their returns with the correct information if their 1099 dividend forms were incorrect. The new information could mean a higher refund, or a higher tax bill.
Voice of the Editor
Which isn’t completely true. I mean, occasionally I drop by when I manage to sneak out of the nonstop frat party over at Going Concern, but I’m mostly a wallflower over there. I’m happy to say that I’ve been given express permission (or explicit orders, if you like) to wander over here to AccountingWEB more often.
Why is that, you might ask? My job is to replace the irreplaceable Gail Perry as Editor-in-Chief. What does that mean? I don’t really know! I think it’ll be fun getting a feel for things, throwing in my own thoughts here and there, and listening to the discussions you’re having about the accounting profession.