Everything You Need to Know About 1099 OID Refund Fraud

The 1099 OID is an increasingly common form. Also known as the Original Issue Discount, it is used to report income generated from specific forms of interest. This applies to the following cases:

  • For any person for whom an individual withheld and paid any foreign tax on OID
  • If the original issue discount includible in gross income is at least $10
  • From whom an individual withheld and did not refund any federal income tax under the backup withholding rules, even if the amount of the OID is less than $10.

OID itself is a form of interest on a bond that was issued after 1984. In most cases, OID occurs when a company issues bonds at a price less than their redemption value at maturity. In the simplest terms, those who hold bonds with OIDs have received a great deal, and they must pay taxes on the discount. A 1099 OID is used to report that refund.

Reducing Fraud as an Employer

Unfortunately, fraud is very common with this form. Most often, this happens when the form uses false withholding information, which reduces the overall amount of taxable income. The IRS has taken notice of these fraud schemes, and the agency has successfully prosecuted them in the past. If you’re interested in learning more about these prosecution successes, we recommend this recent Forbes article, which details some of the top cases in 1099 OID refund fraud.

Fraud most often happens on the part of the recipient. This means most employers – especially small businesses – won’t have to worry about accidentally committing a tax violation. However, we know that many business owners want to preemptively address any potential miscalculations, incorrect data entry, and accidental forms filing. That’s something we can help with.

How Can a Software Tool Help Avoid Penalty?

If you are worried about accidentally committing 1099 OID refund fraud, don’t worry – this phenomenon isn’t often an accident, and it’s not often committed by an employer. However, if you feel strongly about keeping your numbers accurate, up to date, and accessible, we recommend using an accounting software tool. The W2/1099 forms filer from Advanced Micro Solutions, when paired with AMS Payroll , ensures payroll and 1099 data is accurate. This combination is a great way to reduce mistakes on all tax and wage forms. Here are some of our favorite features:

  • Imports data from QuickBooks, Excel, PeachTree, and Tab-Delimited Text Files
  • Exports data to a Tab-Delimited Text File and/or QuickBooks General Journal
  • Print checks individually or by date range
  • Creates an SSN Verification file
  • Easy Payer and Employee Setup
  • Automatic saving feature ensures data is never lost
  • SUI forms for all 50 states, the District of Columbia, and Puerto Rico
  • Support for end-of-year reporting, tax form preparation, and electronic filing

 

Additional Software Solutions from AMS

The software tools from AMS work modularly. This means our users start with our base program, the W-2/1099 filer, and add products to their specific needs. With our tools, you’ll never have to pay for a service you won’t use. This is an efficient and cost-friendly way for small businesses to build a wholly customized accounting software. Our full catalogue is listed below.

Whether your business is issuing a 1099 OID refund or you’re just setting up shop, AMS products can help keep your venture on track.

Software Solutions from AMS

Our W-2 and 1099 Forms Filer is our only required platform. From there, users pick the services they need. Choose from the tools below to build out your customized accounting software.