1099 MISC reporting is one of those processes that never gets the attention it really deserves during implementations or upgrades. The reason is that 1099 MISC reporting is not a main business process, but rather a task that needs to be done once a year in the United States. Therefore, a lot of implementation teams decide to use simple or traditional withholding tax reporting rather than extended withholding tax reporting. The word “simple” probably implies that this function is easier to implement and use. However, my experience shows that by using simple withholding tax reporting, you lose a lot of SAP functionality, and actually the effort to implement it is the same as for extended withholding tax. For example, did you know that extended withholding tax reporting has two correction programs to identify discrepancies in the withholding tax code between your master data and financial documents? Simple withholding tax does not provide any. In fact, if you are on version 4.0 or later, SAP recommends switching from simple withholding tax to extended withholding tax. The reason is that only with extended withholding tax posting can you:

• Post tax postings on both the credit and the debit side of an entry.
• Make an extended withholding tax posting at the payment and invoice posting.
• Post several extended withholding tax categories per line item in parallel.
• Withhold taxes for partial payments.
• Consider minimum amounts, maximum amounts, and exemption limits.
• Split amount with withholding tax in Logistics Invoice Verification (transaction MIRO).

SAP has not yet announced a discontinuation of the development of simple withholding tax. However, new SAP functions — i.e., in contract accounting or country-specific developments — require extended withholding tax. Therefore, I think it is just a question of when SAP will stop further developments of the simple withholding tax. I’m going to describe those two standard SAP correction programs. If you switch to extended withholding tax, you will probably use them frequently for your 1099 MISC reporting tasks and procedures. They are: Program RFWT0010 — Adjustment of the withholding tax information in open items (invoices/credit memos) after withholding tax information changes in the vendor master data. This program changes open items. Program RFWT0020 — Subsequent creation of withholding tax information in invoices/credit memos and payments. This program changes cleared items. Then I’ll explain how to convert to extended withholding tax reporting if you decide you want the added functionality.

Program RFWT0010

Consider the following situation: You have forgotten to update the withholding tax code in the vendor master data. You notice your error and update the tax information within your vendor master data via transaction FK02. Once you save the update, you see the following warning message: Postprocess open items after changing relevant withholding tax types (Figure 1).   What does that mean? In simple terms, it means that after you have changed the withholding tax information in your vendor master data, you need to adjust all the open items. The open items need to have the same withholding tax codes as in the vendor master record. Otherwise, you will not be able process your open item through the regular payment program (transaction F110). In simple withholding tax, no warning message appears. Figure 2 shows the error message that would occur during payment run (transaction F110) if the open item (invoice) and the vendor master data have different tax codes.   To execute program RFWT0010, use transaction SE38 or SA38. Type in the program name RFWT0010 in the program parameter and click on execute. On the selection screen (Figure 3), you can select the documents to be adjusted by vendor/customer, company code, and document details such as document number, fiscal year, or posting date.   In the Doc. Adjustment block, you need to set your adjustment details. If you select the Add new withholding tax types checkbox, the system creates new withholding tax information for open and parked documents based on the withholding tax information you entered in your vendor master records. After you have entered all relevant selection criteria, press enter. The program then lists all open and parked documents for which withholding tax information can be added, changed, or deleted (Figure 4 on the next page). The program also lists locked entries that the program is unable to change because they are in use by other transactions. This could happen if someone is clearing open vendor items (transaction F-44) or vendor items are still locked in a payment proposal run (transaction F110). Even if you deselected Test mode in the selection screen of program RFWT0010, the listed documents are not yet adjusted. Only after clicking on the back button are the documents changed. Now all your withholding tax information is adjusted and you are able to pay the documents without any errors during the payment run (F110).  

Program RFWT0020

The second SAP utility program is RFWT0020. (See Figure 5.) This program is able to change withholding tax information in invoices, credit memos, and payments. This functionality is needed if you realize that invoices and payments were processed with wrong or no withholding tax information during the year and you want to change the information.   Note that this program only processes tax information with a tax rate of 0 percent. Tax rates with 0 percent are tax types that do not require withholding of a fixed percentage of the payment. The execution and selection steps (Table 1) are similar to those in program RFWT0010. You can select vendor and customer documents by master data information, such as vendor/ customer number, tax ID, or Social Security number, or by document data, such as company code, document number, and fiscal year. The withholding tax information in the payment documents is adjusted based on the withholding tax information in the invoices. That makes it necessary to adjust the invoices first. On the other side, the withholding information in the invoices can either be missing or can be wrong. To adjust all invoice and payment documents, you need to execute this program four times in sequence with the selection criteria shown in Table 1.

Sequence Only recreate documents without withholding tax data Documents   1 Switched on Invoice documents   2 Switched off Invoice documents   3 Switched on Payment documents   4 Switched off Payment documents Table 1 Execution and selection steps for program RFWT0020

Conversion to Extended Withholding Tax Reporting

SAP delivers a transaction for the conversion from simple withholding tax to extended withholding tax. Use transaction WTMG to convert your data (Figure 6). This tool is simple to use and well documented by SAP. Note that during conversion no posting can be executed. Otherwise, data inconsistencies could occur. I also recommend that you make a system backup before you start your conversion steps, because you will be changing a large number of documents in your system, and the system performs a large number of database table changes.   In the type and code assignment screen (Figure 7), you assign the simple withholding tax codes to the extended withholding tax codes. This step is important, because this assignment determines how the simple tax codes are converted to the extended tax codes. After you have saved the Type and Code assignments, you just need to run the following conversion steps. This conversion tool forces you to execute the steps in the right order.

Conversion steps:

1) Analysis 2) Master data settings 3) Conversion of vendor master data 4) Conversion of documents (invoices/payments) These steps are well documented by SAP. Just press the information button next to the different tasks.   Click here to download the full article on the Deduction Management Component.

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