The 1099 tax form is not a tax form in the traditional sense because it is not technically required by an individual to file their taxes. It is often referred to as an “Information Return”. Every business is required to file a 1099 to the Internal Revenue Service and provide a copy of the 1099 to the taxpayer so it can be used for income tax preparation.
While it is most often associated with businesses utilizing independent contractors there are numerous situations which may result in a 1099 being required. It is critical to provide appropriate 1099 forms to taxpayers and file them with the IRS in a timely manner. Failure to file in a timely manner can lead to significant penalties.
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While there are a lot of different types of 1099 forms, they are all considered "payee statements". There are two different 1099 form filing deadlines business owners need to be aware of. As with all IRS deadlines, the date will be moved to the next business day if the due date
The first deadline is when the 1099 must be provided to recipients. The due date is dependent on the type of 1099. The 1099 MISC (with data in boxes 8 or 10), 1099-B, and 1099-S must be provided to recipients by February 16th. All other 1099 forms must be provided by February 1st including any 1099 MISC which does not have data in boxes 8 or 10.
The second due date for form 1099 is when it must be provided to the Internal Revenue Service. This due date will vary depending on if it is filed with the IRS via mail or if you file electronically. If you file on paper forms by mail there are two due dates. The 1099 NEC must be filed by January 31st and all other 1099 forms must be filed by February 28th. If you are filing electronically, the 1099-NEC due date is still on January 31st but all other form 1099s are due on February 28th.
Even if you do not receive an information return, you could still file taxes without a 1099.
The due dates for information returns are earlier than most tax return paperwork because it allows the IRS to detect refund fraud more easily. The IRS recommends you e-file because it is not only the quickest option but also the most accurate.
Most new business owners assume that filing their form 1099 with the Internal Revenue Service will also cover any state specific requirements. While this may be true in many cases it is not universal.
There is a combined state/federal program for 1099-Series forms which many states take advantage of. This program allows you to file with the IRS and the information is then transmitted to the state. Currently, only 31 states fall into this category so it is always important to check your state requirements.
There are also 12 states which do not require the filing of a Form 1099-MISC and 6 states require a separate filing.
There are two different types of 1099 late filing penalties based on when the 1099 is filed, if it is filed at all. These penalties assume the correct payee statement was filed and no corrections are needed.
A 1099 late filing penalty is a bit different than how a tax underpayment is calculated. The amount of the penalty is based on how late the filing is and how many 1099's are filed late and the size of your business. A "small business" is any business with gross receipts of $5 million or less. A large business is any business with more than $5 million in gross receipts during the tax year.
It is important to keep in mind the below penalties are based on tax year 2020 IRS regulations so the amounts may increase or decrease in the following tax years.
How many days after the due date were you late? The penalty for filing form 1099 less than 30 days late is $50 per form with a maximum penalty of $194,500 for small businesses and $556,500 for large businesses. If you are late, be sure to file within 30 days to avoid receiving a larger penalty.
The penalty if you send in a form 1099 and file more than 30 days after the deadline but by August 1st is $110 per form with a maximum penalty of $556,500 for small businesses and $1,669,500 for large businesses.
If you file after August 1 the penalty is $270 per form with the maximum penalty of $1,113,00 0 for small businesses and $3,339,000 for large businesses.
If you do not file your required 1099s at all then the IRS may impose additional penalties than the $270 per statement. This situation will arise when the IRS determines the lack of filing is due to "intentional disregard". The Internal Revenue Service notes that intentional disregard can occur when you know or should know the filing requirements but intentionally ignored them.
There are 3 criteria which must be met for the IRS to prove the intentional disregard standard.
If the IRS believes all three criteria have been met, the penalty for not filing a 1099 is $550 per return and there is no cap on the total penalty amount.
Along with filing the 1099 with the IRS, you must also provide the 1099 to the payee. The penalty for not providing a correct information return to the payee is the same as if it was not filed timely with the IRS. If it is determined you only provided partial information the penalty is $530 with no cap on the total penalty amount. Fortunately, there are no penalties for inconsequential errors.
There are two different classifications of 1099 errors - Type 1 and Type 2. The correction method will be determined by what type of error it is.
A Type 1 error occurs when the following information is incorrect:
Correcting a Type 1 error requires you to complete a 1099 with the correct information and check the "CORRECTED" checkbox on the 1099. Once the corrected form has been created, it must be sent to the recipient. A red Copy A must be sent to the IRS with Form 1096 if you file by paper. If you are e-filing, you do not need to send a Form 1096 and you do not need to include the originally filed forms. You only need to submit the new 1099.
A Type 2 error occurs when the following information is incorrect:
Correcting a Type 2 error requires you to complete and file two form 1099s. The first will include the same payer and recipient information that was on the incorrect form. All of the amounts will be $0.00 and the "CORRECTED" box should be checked. Functionally, when this form is filed it will zero out the incorrect form information that was previously filed.
Once this has been completed, you will need file a new Form 1099 with the correct information. The filing process is the same as the Type 1 error. The corrected form will be sent to the recipient a red Copy A must be sent to the IRS. If you are e-filing Form 1096 is not needed but if you are filing by mail it is required.
Voiding a 1099 is an option in some cases. Next to the "CORRECTED" checkbox there is a "VOID" checkbox. If you have mistakes on a completed 1099 and have not submitted it to the IRS, you can void it. You cannot void a 1099 if you have already filed it with the IRS.
The primary benefit of voiding a 1099 is administrative. If you a completed or partially completed 1099 that is incorrect, voiding it provides you with a way to cancel out a single form that is on the same sheet of paper as other 1099 forms. This is a simple solution that can be used so that you don't have to redo/re-print all of the other 1099 forms.
If you plan ahead, it is possible to request a 1099 extension however this must be done prior to the filing deadline. You cannot avoid 1099 late filing penalties by requesting an extension after the deadline. The method used to request the extension is based on what you need the extension for.
To request an extension related to providing 1099 copies to recipients you must send a letter to the IRS explaining why the extension is needed. Along with a reason for the extension you will also need to provide information about each recipient. The required information is available on the IRS website.
To request an extension to file your 1099s with the IRS you must complete and submit Form 8809. It must be postmarked prior to the filing deadline. This will provide an automatic 30 day extension. If an additional 30 days is needed and additional request may be filed but it will not automatically be granted.
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