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April 2011 Edition of Indian Tribal Governments News

ITG News Home Page

Table of Contents

  • Message from the Director
  • Affordable Care Act W-2
  • Reporting Requirement Exemption
  • Bonuses - Tax Treatment
  • Elimination of Direct Mailouts
  • Vendor Verification & Excluded Parties List System
  • Federal Tax Deposits Changing to Business Days
  • Increase in Information Return Penalties
  • Try Fast Track Settlement
  • Getting Ready for Pow Wow Season
  • Common Errors on Filing FinCEN Form 103
  • Office of Foreign Assets Control (OFAC) Reporting
  • Pacific Northwest Training Opportunities
Individual Issues
  • What to Do if You are Missing a W-2
  • Filing for a Dependent - Per Capita Distributions

Scroll down the page to view each of the articles

 

Message from the Director

Welcome spring and welcome a new look for the ITG Newsletter!

In response to your consistent feedback in our customer satisfaction surveys, ITG is changing both the content and the way we deliver the quarterly newsletter.

In the past, we have issued 9 separate regional newsletters each quarter. Our analysis showed that generally the content was very similar in each newsletter, with the main variance being which quarter an article would appear. In other words, there were very few items that solely pertained to one region. In addition, subscribing was difficult. You had to contact one of us directly and give us your email address, and we had to manually input that and issue the newsletter to you each quarter. You had to repeat this process if you wanted to subscribe to more than one regional newsletter. In our surveys, you asked that we make it easier for you to see what is happening in other regions and that we make it easier for you to subscribe. I am very happy to say that we heard you, and we are making those changes starting right now!

First, we are moving to a single national newsletter each quarter which will be called “ITG News”. This edition of “ITG News” reflects our first step in transitioning to the new format. Beginning with the July edition, the ITG News will be available online with all the articles displayed as links which you can easily click on and read. You will find a link for printing the news should you prefer that. The version you are receiving this time is what the print version will look like. The tax calendar will continue to be available to view or print as well. With all the news available in one newsletter, regional articles will still appear and will be clearly labeled so you know whether they apply to you. If you’re interested in what is happening in another region, it is right there for you to view: no need for multiple subscriptions!

Second, beginning with the July edition, we will issue ITG News using the Gov Delivery system. You will receive an email from that system letting you know that ITG News is available and waiting for you. You simply click on the link provided and you will be taken to the news! Last but not least, that system will allow you to subscribe by going to our website, typing in your email address, and clicking subscribe! The system is completely automated and easy to use. (For those of you already on the subscription list, we will be downloading your email addresses into Gov Delivery before the next edition so there should be no need for you to sign up again.)

As always, we want to hear what you think of the changes. This is a work in progress and it will take a while for us to completely get it off the ground. The ITG Specialists who were the regional newsletter editors continue to be the folks putting this new format together and want to hear from you. Please email us with any comments or suggestions.

Change isn’t easy and it takes time, but changes must take place just as certainly as spring does eventually come. I hope you will find this new format an improvement in how we deliver news to you and I look forward to your input.

Sincerely,
Christie Jacobs, Director

 

Affordable Care Act W-2 Reporting Requirement Exemption for Indian Tribal Governments

The IRS announced in March 2011 that federally recognized Indian tribal governments are not required to report the cost of health care coverage on their employee’s Form W-2. This exemption was announced in IRS Notice 2011-28 ; Question & Answer 3.

 

Bonuses - Tax Treatment

A tribe must report bonuses it pays an employee and include them as wages on the Form W-2. If in the form of goods or services, the tribe will add the fair market value to the employee’s income.

The IRS defines bonuses as supplemental wages paid in addition to the employee’s regular wages. How you withhold on bonuses depends on the reporting method, described below:

Bonus Combined with Regular Wages

If you pay bonuses with regular wages but do not specify the amount of each, withhold income tax as if the total were a single payment for a regular payroll period.

Bonus Identified Separately from Regular Wages

If you pay bonuses separately (or combine them in a single payment and specify the amount of each), the income tax withholding method depends partly on how you withhold income tax from your employee’s regular wages:

  • If you withheld income tax from an employee’s regular wages, you can use one of the following methods for the bonus:
    1. Withhold a flat 25% (no other percentage allowed).
    2. Add the bonus and regular wages for the most recent payroll period this year.
    3. Figure the income tax withholding as if the total were a single payment. Subtract the tax already withheld from the regular wages. Withhold the remaining tax from the bonus.
  • If you did not withhold income tax from the employee’s regular wages, use method #2 listed above. (This would occur, for example, when the value of the employee’s withholding allowances claimed on Form W-4 is more than the wages.)

Regardless how you withhold income tax on bonuses, they are subject to social security, Medicare, and FUTA (if applicable) taxes.

Below are two examples:

Example 1

You pay Sharon a base salary on the first of each month. She is single and claims one allowance. Her July 1, 200X, pay is $2,000. Using the current wage bracket tables, you withhold $200. On July 15, 200X, you pay Sharon a bonus of $2,000. Electing to use supplemental payment method #2, you:

  1. Add the bonus amount to the amount of wages from the most recent pay date ($2,000 + $2,000 = $4,000).
  2. Determine the amount of withholding on the combined $4,000 ($613 using the wage bracket tables).
  3. Subtract the amount withheld from wages on the most recent pay date from the combined withholding amount ($613 - $200 = $413).
  4. Withhold $413 from the bonus payment.

Example 2

The facts are the same as in the above example, except that you elect to use the flat rate method of withholding on the bonus. You withhold 25% of $2,000, or $500, from Sharon’s bonus payment.
 

 

Elimination of Direct Mailouts

Taxpayers, including tribal governments, will no longer receive additional tax packages in the mail from the IRS. Most importantly for tribes, the Form 941, Employer’s Quarterly Federal Tax Return, will no longer be mailed.

The IRS took these steps due to the continued growth in electronic filing as well as to help reduce costs.

You may still obtain these and other materials you need for filing your return by:

  • accessing our forms and instructions online at IRS.gov, then click on Forms and Publications where you can quickly download the latest products 24 hours a day, 7 days a week;
  • dropping by your local IRS Taxpayer Assistance Center;
  • going to your local post office or library (if they participate in the federal tax products program);
  • ordering forms, instructions and publications by telephone, call 1-800-TAX-FORM (1-800-829-3676);
  • ordering tax products through the mail by sending a written request to the following address:   

Internal Revenue Service  
1201 N. Mitsubishi Motorway  
Bloomington, IL  61705-6613

Generally, you should receive your forms within 10 business days of order receipt if the product is in stock. If the product is not in stock, you will receive a backorder notice. Backordered products are shipped when they are received at the IRS National Distribution Center.

 

Vendor Verification and the Excluded Parties List System

Most companies check with state boards and the Better Business Bureau before accepting bids from vendors. However, did you know that there is a federal website that lists companies banned from receiving federal contracts?

Why would a tribally-owned business care? Consider the following: You are getting ready to accept bids on the construction of a new casino.  Would it be helpful to know that the lowest bidder on the contract has been banned for

  • overbilling on a previous contract;
  • providing sub par materials;
  • paying kickbacks to the procurement officials?

The General Services Administration (GSA) provides a website service called The Excluded Parties List System (EPLS) which conveniently shares information regarding companies that are excluded from receiving federal contracts, certain subcontracts, and certain federal financial and nonfinancial assistance and benefits.

 

Federal Tax Deposits Changing to Business Days

The IRS will not charge penalties for Federal Tax Deposits (FTDs) due in 2011 which are late because the depositor treated a statewide legal holiday as if it were a legal holiday in the District of Columbia.

Since a taxpayer will no longer be able to make FTDs at a government depositary bank, the regulations removed the references to “banking days” and instead determined the timeliness of deposits by reference to “business days.”  A business day is any calendar day that is not a Saturday, Sunday, or legal holiday.  For FTD purposes, a “legal holiday” refers only to those days recognized by the District of Columbia.

A statewide legal holiday is no longer a legal holiday unless the holiday coincides with a legal holiday in District of Columbia.  For a list of legal holidays, see Section 11, Depositing Taxes of Publication 15 (Circular E), Employer’s Tax Guide.
 

 

Increase in Information Return Penalties

Section 2102 of the Small Business Jobs Act of 2010 increased penalties for:

  • failure to file information returns;
  • failure to furnish correct payee statements;
  • and for intentional disregard of the law.

Under section 6721 of the Internal Revenue Code, penalties may be assessed for failure to file correct information returns by the due date without reasonable cause. This includes forms in the 1099 series.

Penalties may also apply if:

  • you show incomplete or incorrect information;
  • you file on paper when you were required to file electronically;
  • or if you fail to file machine readable paper forms.

For returns required to be filed January 1, 2011, or later, the penalty for each information return filed is as follows:

  • $30 per return if you correctly file within 30 days; the maximum penalty is $250,000 per year. For small businesses, the maximum penalty is $75,000 per year.
  • $60 per return if you correctly file more than 30 days after the due date but by August 1; the maximum penalty is $500,000 per year. For small businesses, the maximum is $200,000 per year.
  • $100 per return if you correctly file after August 1; the maximum penalty is $1,500,000 per year. For small businesses, the maximum penalty is $500,000 per year.

The penalty for failure to furnish correct payee statements under IRC 6722 increases to $100 per return. The maximum penalty under this provision is $1,500,000 per year. For small businesses, the maximum penalty is $500,000 per year. These penalties may be reduced as follows:

  • For failures corrected within 30 days after the due date, the penalty is reduced to $30 per return. The maximum penalty is $250,000 per year. For small businesses, the maximum penalty is $75,000 per year.
  • For failures corrected on or before August 1 the penalty is reduced to $60 per return. The maximum penalty is $500,000 per year. For small businesses, the maximum is $200,000 per year.
  • Small businesses for this purpose are those with gross receipts of not more than $5,000,000.

The penalty for intentional disregard is $250 per return for all filers. There is no maximum annual amount for this penalty.

Beginning in 2012, these amounts will be adjusted annually for inflation.

For information on information return penalties, including exceptions, see the General Instructions for Certain Information Returns.For a discussion of other issues involving information reporting requirements, see the Third Party Reporting Information Center.

And don’t forget – you can always contact your ITG Specialist if you need help making sure you are filing timely.

 

Try Fast Track Settlement

The Office of Indian Tribal Governments offers the Fast Track Settlement (FTS) program to help you resolve tax disputes at the earliest possible stage in the examination process. This program is different from the traditional appeals process because you and the auditor meet with a mediator--an independent Appeals officer--before the audit is completed.

By engaging in a face-to-face 3-way meeting, you have the opportunity to state your position. The auditor then provides the government’s position. The Appeals officer’s goal is to evaluate both positions and help you work toward an agreeable compromise. The Appeals officer brings experience, having dealt with similar issues, to the table. Either party may decline the offers on the table.  If you are unable to agree on the issue(s), the FTS process ends, and you still have the opportunity to appeal your position through the traditional appeals process.

To participate in the FTS program:

  1. Complete the application (Form 14017), prepare a written response to the issues stating your position and give it to your auditor.
  2. Evaluate the tax issues which are inflexible and areas which may be flexible. Determine potential ‘give and take’ issues and amounts.
  3. Ensure that you or a representative attends the FTS meeting who can make a decision and legally sign documents.  You should also be prepared to sign a new audit report that might be prepared and presented at the FTS meeting.


This new process has proven to save as much as a year’s time in the customer’s overall IRS experience.  Applying for Fast Track Settlement is quick and easy – simply fill out a one-page application and provide your position in writing.  Once the case is accepted into the FTS program, an Appeals official will contact you and start the ball rolling.

For additional information, see Publication 4167, Appeals – Introduction to Alternative Dispute Resolution, or contact your local ITG Specialist.
 

 

Getting Ready for Pow Wow Season

As Pow Wow season approaches, one of the most essential, but often overlooked preparations involves proper information reporting or withholding associated with payments to Pow Wow participants and organizers.

Reporting responsibilities for a typical Pow Wow may include payments to any of the following: 

  • Pow Wow Committee Members (even if the Committee is a nonprofit entity);
  • Arena Staff and Other Contractors (Announcer, Head Man Dancer, Head Woman Dancer, Arena Director, Head Drum, Whip Man and Woman, Judges, Construction Workers, Security Guards, and Honor Guard);
  • Contest Participants (in all contest drumming and dancing categories);
  • Raffle Winners;
  • Concession and Other Vendors;
    Arts & Crafts Vendors

Let’s discuss a couple of these…

A trade or business must report payments made to anyone receiving $600 or more.  At a typical Pow Wow, the tribe represents the “trade or business.”

Pow Wow committee members often work countless hours and travel many miles to fulfill their responsibilities as committee members.  Some tribes pay committee members for their time, travel and meeting expenses.  Other tribes do not.  If a tribe pays its Pow Wow committee members, they need to determine if the Pow Wow committee member is an employee or an independent contractor, and then issue the appropriate Form W-2 or 1099-MISC.  The tribe must obtain the social security numbers or tax identification numbers (TIN) prior to making any payments.  A Form W-9 is the best way to secure this information. If the tribe does not obtain the social security numbers or TINs before payment, they withhold at the back up withholding rate of 28%.  Report all withholding related to Form 1099 on Form 945, Annual Return of Withheld Federal Income Tax.

Pow Wow expenses can include travel or meeting expenses.  If a tribe reimburses committee members for these or other Pow Wow costs and requires them to report their expenses to the tribe under an accountable plan, no IRS reporting is required. If a tribe does not pay or reimburse a committee member (or anyone else) for expenses, then that person can report the cost on their personal income tax returns as charitable contributions. Additional tax-deductible contributions include donated noncash items (food, shawls, blankets, beadwork, etc.) or prize money to a tribe.

Prizes paid to dance, drum, and other contest winners must be reported on Form 1099. Prior to making the payment, the tribe must obtain the recipient’s name and taxpayer identification number. Otherwise the payment would be subject to back up withholding at a rate of 28%.  The tribe would use Form W-9 to obtain the proper information and certifications.

Any payment that is reportable on Form 1099 is subject to aggregation.  Payments for the calendar year which are $600 or more require reporting on a Form 1099. That means you must search your records for all payments made to a particular individual during the year to determine if a Form 1099 is required.  For example, a prize payment of $200 during a Pow Wow would be added to a $500 payment in October to a painting contractor for total Form 1099 income of $700.

Prizes and awards paid to a non-resident/non-citizen of the United States are subject to 30% withholding.  The tribe reports these payments on Forms 1042-S and 1042.  There is no $600 threshold before reporting begins; in other words, all prizes are reportable and subject to withholding.  A Form 1042-S can be issued without a U.S. tax identification number.  The individual will file a Form 1040NR to claim a refund of part or all of their withholding, if applicable.

Raffles are taxable lotteries.  Tribes must report raffle winnings on Form W-2G when the proceeds are $600 or more.  For more information regarding gaming, please review Publication 3908, Gaming Tax Law and Bank Secrecy Act Issues.

Remember, a Tribe must be prepared to fulfill its tax reporting obligations.  The time to obtain the correct name and taxpayer identification number is before the payment is made.  This information needs to be communicated to your Pow Wow committee and Pow Wow workers.  No job is done until the paperwork (even electronic “paperwork”) is done--including filing and providing the proper information returns, making timely deposits of withheld taxes, and filing Form 945 or Form 1042 by the due date.

We hope this information will assist tribes in planning for their tax reporting responsibilities. If you have any questions on preparing the information reporting for your Pow Wow event, please contact your ITG Specialist.

 

Common Errors on Filing FinCEN Form 103

Tribal casinos with currency transactions greater than $10,000 have to file the FinCEN Form 103  Currency Transaction Report by Casinos (CTRC) within 15 days of the transaction.   The form includes instructions for properly completing the information needed in a CTRC. You are required to complete all items marked with an asterisk (*).

Bank Secrecy Act (BSA) examiners with the Internal Revenue Service have detected some common errors on CTRC submissions that can be easily avoided. An effective BSA compliance program ensures that all forms required by the BSA are filed correctly and accurately.

In Part I, common errors include omitting date of birth information and entering an incorrect social security number.  Law enforcement officials require a person's date of birth to ensure proper identification.  Another error results when using a post office box number without taking reasonable steps to determine a permanent address does not exist.  The steps taken should be incorporated into the casino’s policies and procedures of the compliance program.

Another common error occurs while completing Part II, Amount and Type of Transaction, when the cash over $10,000 is the result of aggregating amounts over the casino's gaming day.  You do not need to complete the form unless there is an aggregation of over $10,000 cash into OR over $10,000 cash out of the casino.  You also do not need to complete the form if the $10,000 threshold is never met.  When aggregated transactions exceed $10,000, enter the amount in Line 32 for Cash Out; or Line 32 for Cash In.

A crucial and common error occurs specifically with tribal casinos in Part III, Casino Reporting Transactions, Line 35 and Line 36.   Line 35 is Casino's Trade Name; this is where you enter the name the casino uses when doing business. In other words, you do not enter the corporate, partnership, or any other name, unless it is the name the casino uses when doing business.

Line 36, Casino's Legal Name for a tribal casino is the legal name of the tribe.  This is a very important distinction in completing the FinCEN Form 103 because every form that you file will have an error if Part III, Line 36 is incorrect.  Tribal casinos that are unincorporated instrumentalities or tribal enterprises are not separate legal entities. For these tribal casinos the legal name for Line 36 reporting purposes is the name of the tribe.

Some tribal casinos are incorporated businesses under section 17 of the Indian Reorganization Act and have a tribal council approved corporate charter.  These federally incorporated tribal casinos are separate legal entities. Therefore Line 36 should show the legal name that appears on the tribal corporation's charter.

Care should also be taken in completing the FinCEN Form 102, Suspicious Activity Reports by Casinos and Card Clubs which requires the legal name of the casino to be entered in Part IV, Line 33. 

Careful attention to completing the FinCEN Form 103, referring to the line by line instructions for the form and ensuring the correct legal name of the gaming entity will prevent common filing errors and increase the effectiveness of a tribal casino's Anti-Money Laundering BSA Compliance Program.   As always, your Indian Tribal Government Specialist is available to assist you with any questions.  Further information can be found at ITG's website and FinCEN's website on casinos.

 

Office of Foreign Assets Control (OFAC) Reporting:
What You Need to Know

Does a tribe or tribal business (including a casino) need to verify the OFAC listing when making payment to an individual for services, cashing a check or paying-out a jackpot? A good searchable source of OFAC information is the Frequently Asked Questions Index  on the OFAC website  where the questions are sorted by question number and topic.  Below are excerpts, along with explanations:


Question 11: “Who must comply with OFAC regulations?

All U.S. persons must comply with OFAC regulations, including all U.S. citizens and permanent resident aliens regardless of where they are located, all persons and entities within the United States, and all U.S. incorporated entities and their foreign branches. In the cases of certain programs, such as those regarding Cuba and North Korea, all foreign subsidiaries owned or controlled by U.S. companies must also comply. Certain programs also require foreign persons in possession of U.S. origin goods to comply.

Tribes and tribal businesses including casinos must comply with OFAC regulations regardless of whether or not they are considered financial institutions under the Bank Secrecy Act (BSA). Tribes and tribal businesses (including casinos) must comply because they are considered U.S. persons.


Question 25: “Does OFAC itself require that banks set up a certain type of compliance program?

No. There is no single compliance program suitable for every financial institution. OFAC is not itself a bank regulator; its basic requirement is that financial institutions not violate the laws that it administers. Financial institutions should check with their regulators regarding the suitability of specific programs to their unique situations.

This does not directly speak to tribes and tribal businesses (including casinos), but it does speak to financial institutions. Banks have regulators which check them for safety and soundness as well as other matters.  Because the fines for violating OFAC requirements are substantial, this could affect the safety and soundness of the bank.  For this reason bank regulators consider OFAC compliance as a part of their safety and soundness examinations. Other tribal businesses including casinos may have similar regulators.

The IRS-BSA Group maintains OFAC examination authority for compliance. It is expected that in the near future the group will be conducting a survey of OFAC awareness among money services businesses, but for the immediate future casinos will not be included.

The two primary types of OFAC sanctions are trade restrictions with countries and with entities.  The next question provides information sources about these embargoes:

Question 6: “Where can I find the specific details about the embargoes?

A summary description of each particular embargo or sanctions program may be found in the Sanctions Program and Country Summaries area  and in the Regulations by Industry area  on OFAC's website. The text of Legal documents may be found in the Legal Documents area  of OFAC's website which contains the text of 31 C.F.R. Chapter V and appropriate amendments to that Chapter which have appeared in the Federal Register.

OFAC also maintains a list of Specially Designated Nationals (SDNs)  with whom U.S. persons are prohibited from transacting.  The list is very long and changes frequently.

There are also a number of commercial services which can scan the list for tribes and tribal businesses including casinos as the transaction is occurring.  Most banks use this type of software to prevent violations.  A reasonable procedure would be to use this type of software before issuing a Form 1042-S on a jackpot payout or any other type of transaction with individuals known to be foreign. The next question provides further clarification:

Question 45: “Does my bank need to check the OFAC list when selling cashier's checks and money orders?  In the case of cashier's checks, do I need to check both the purchaser and the payee? As a mortgage lender, do I need to check both the purchaser and the seller's name against the SDN list?

Every transaction that a U.S. financial institution engages in is subject to OFAC regulations. If a bank knows or has reason to know that a target is party to a transaction, the bank's processing of the transaction would be unlawful.

If you have any questions related to OFAC call the hotline at 1-800-540-6322.  OFAC is the expert in this area and can provide your tribe and tribal business (including the casino) with the best possible answers to your questions.

 

Pacific Northwest Training Opportunities

The Internal Revenue Service, Office of Indian Tribal Governments (ITG), will be offering a Payroll Tax/Information Returns Workshop and a Gaming Information Return Workshop for our Tribal Customers during the Month of May. The training location is Portland, OR, 100 SW Main St, 9th floor training room.  The dates and topics are listed below. 


Basic Payroll Tax/Information Returns Workshop
Date: May 17-18, 2011

Topics

  • How to Avoid Penalties and Interest
  • Independent Contractors versus Employees
  • IRS Collections Process
  • Calculating Employment Tax Liabilities
  • How to Handle Travel Expenses
  • Employment Tax Deposit Schedules
  • Preparation and Filing of Form 941, Form 945, W-2s and Form 1099s
  • End of Year Reconciliation of Form 941s and W-2s
  • Social Security – How to file W-2s electronically

Time is set aside on the second day to discuss any issues or problems you may have with IRS.

Gaming Information Return Workshop 
Date: May 19, 2011

Topics

  • The required tax reporting for gaming related payments/activities. To include payments made to:
    • U.S. Residents - W-2Gs, Form 1099-Misc, Form 1096, Form W-9, and Form 5754
    • Foreign Persons – Form 1042, Forms 1042-S and T, W-7, W-8BEN, and Pub. 515
  • Tax Deposit Schedules
  • How to Avoid Penalties and Interest
  • End of Year Reconciliation of Form 945 to W-2G and 1099-Misc and the various 1042 forms
  • TIP Compliance – Form 8027, TRDA and GITCA tip agreements

Contact Doug Wellington for additional information or to register.
Telephone: (503) 415-7315 FAX: (360) 699-1060
 

Please Respond by April 15, 2011.


Here is What to Do If You Are Missing a W-2

Before you file your 2010 tax return, you should make sure you have all the needed documents including all your Forms W-2. You should receive a Form W-2, Wage and Tax Statement, from each of your employers. Employers have until January 31, 2011, to send you a 2010 Form W-2 earnings statement.

If you haven’t received your W-2, follow these four steps:

1. Contact your employer if you have not received your W-2; contact your employer to inquire if and when the W-2 was mailed. If it was mailed, it may have been returned to the employer because of an incorrect or incomplete address. After contacting the employer, allow a reasonable amount of time for them to resend or to issue the W-2.

2. Contact the IRS if you do not receive your W-2 by February 14th; contact the IRS for assistance at 800-829-1040. When you call, you must provide your name, address, city and state, including zip code, social security number, and phone number and have the following information:

  • Employer’s name, address, city and state, including zip code and phone number
  • Dates of employment
  • An estimate of the wages you earned, the federal income tax withheld, and when you worked for that employer during 2010. The estimate should be based on year-to-date information from your final pay stub or leave-and-earnings statement, if possible.

3. File your return. You still must file your tax return or request an extension to file April 18, 2011, even if you do not receive your Form W-2. If you have not received your Form W-2 by the due date, and have completed steps 1 and 2, you may use Form 4852, Substitute for Form W-2, Wage and Tax Statement. Attach Form 4852 to the return, estimating income and withholding taxes as accurately as possible.  There may be a delay in any refund due while the information is verified.

4. File a Form 1040X. On occasion, you may receive your missing W-2 after you filed your return using Form 4852, and the information may be different from what you reported on your return. If this happens, you must amend your return by filing a Form 1040X, Amended U.S. Individual Income Tax Return.

 

Filing a Tax Return for a Dependent with Per Capita Distributions

Are you claiming a dependent who received a taxable per capita distribution reported on a Form 1099-MISC?* Your dependent may also have a filing requirement.  An individual claimed as a dependent on someone else’s return is required to file a tax return if unearned income exceeds $950.  Per capita distributions are classified as “unearned income.”

* If you did not receive a Form 1099-MISC and you are unsure if your per capita payments are taxable, please check with your tribal administration.

Example One

Sandy’s father claims her as a dependent on his tax return. Sandy’s only income is a per capita distribution of $1,500. She will have to file a Form 1040. Below is how she reports the income on Form 1040:

Class III Gaming Proceeds – Line 21    

$1,500

Less: Standard deduction – Line 40b

$950

Personal Exemption – Line 42

$0

Taxable Income – Line 43

$550

Tax – Line 44

$55

 
 
Example Two
 
Using the above scenario, except Sandy’s father did not claim her as a dependent--she would not have a filing requirement (or tax), as her income was at less than $9,350 (standard deduction of $5,700, plus 1 exemption amount of $3,650.)

You must also make a special tax computation if the child’s investment income is more than $1,900--whether or not you claim that child as a dependent.  Again, per capita distributions are considered “investment income”.  Form 8615, Tax for Certain Children Who Have Investment Income of More Than $1,900, must be used to figure your child’s tax if the child’s investment income is over $1,900.
 
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