The IRS requires 1099 forms to obtain information on various nonemployee transactions, including payments to freelancers and legal services. Sounds simple, doesn't it? Keep track of transactions and report them. But the challenge begins when you realize that there are 20 types of 1099 forms with different deadlines. And that you must submit a return form whether you make one transaction or a hundred.
Any errors during the submission process may result in a penalty.
If you're lucky, you'll find that you submitted an incorrect 1099 form before the filing deadline, giving you time to fill out a new one and avoid penalties. But in some situations, you may not realize you made an error until the Internal Revenue Service sends you a tax request or notice for an audit.
Fortunately, if you submit an incorrect 1099 form, you can quickly resubmit a 1099 form without errors to avoid 1099 penalties, as long as you submit the correct form before the submission deadline.
Common Form 1099 Form Errors
You can file most types of 1099 forms electronically or on paper. Here are the common mistakes companies make when filling out paper 1099 forms.
Error Type 1
Error type 1 refers to multiple errors on the paper Form 1099: incorrect code, checkbox, amount(s) of money, or filing a paper return when you shouldn't. Although the IRS can penalize you for filing 1099 with these errors, there are four steps you can take after filing an incorrect 1099 to file a new form without errors and avoid penalties:
Fill out a form with accurate information.
Tick the "CORRECTED" box.
Include a new 1096 and Copy A (i.e., a copy of 1099 the IRS receives) to send to the IRS.
Re-file and send 1099 correctly to the recipient, IRS, and state tax agency as needed.
As long as you complete the forms on time, the IRS will not penalize you for any of these errors.
Error Type 2
Another type of 1099 paper error is missing or incorrect beneficiary identification information, including an incorrect Taxpayer Identification Number (TIN) or improper preparation of the paper form.
Follow these four steps to avoid penalties for Type 2 errors:
Obtain a new 1099 form and check the "CORRECTED" box. Fill it in precisely as shown in the original error, but enter "0" for all values.
Prepare another Form 1099 with all the accurate information, but do not check the "CORRECTED" box.
Complete a new Form 1096 with the correct information to submit with Copy A to the IRS.
Re-file and send all these documents to the appropriate IRS mail processing center.
As with Type 1 errors, the IRS will not penalize these errors as long as you file them before the forms submission deadline.
Missing state or local information on your paper form
When filling out the 1099 paper form, the foreign postal code, province, or city may be entered incorrectly. Without this data, the IRS can penalize you for not showing the exact payment to nonemployees.
Unlike other paper form errors, do not file a corrected Form 1099 or a new Form 1096. Instead, contact your local or state tax office for assistance. They will help you correct this error before the IRS penalizes you.
Common Electronic Form Error
The following is a common error in the electronic form to avoid.
Incorrect payer name and/or TIN (electronic form)
An incorrect payer name or TIN (Tax ID Number) on an electronic form can result in penalties of up to $280 per return.
If you find that you have reported the same information twice or made too many mistakes, contact the IRS Customer Helpline at 866-455-7438.
Common errors in the paper and electronic forms
Here are common mistakes to avoid when filing paper and electronic forms.
Failure to complete a 1099 form on time
The IRS penalizes businesses that do not file the correct 1099 forms on time.
For example, companies must file Form 1099-NEC (Non-Employee Compensation) by January 31. Otherwise, the IRS charges between $50 and $280 per information, depending on when you pay the fine.
You can file your 1099 forms on time by looking up a form's due date once you've received nonemployee compensation. So if you are self-employed, check the due date on Form 1099. You will need to report this nonemployee compensation. Then set up a calendar alert so you don't forget to file this transaction.
Most 1099 forms have the same deadlines, so it's easy to memorize due dates:
1. You can submit all paper Form 1099s except Forms 1099-NEC and 1099-SB by February 28. For each 1099 form you submit, you will also need to submit a 1096 form, a form needed to transmit the paper 1099 forms.
2. You can submit any 1099 form online except 1099-NEC and 1099-SB by March 31. If you think you've missed an expiration date, don't give up yet! The IRS allows you to file an Application for Extension of Time to File (for example, a paper or online Form 8809) before a return's due date to get an automatic 30-day extension to file your 1099 Forms.
There are exceptions to these rules. For example, you cannot request an extension to file a 1099-NEC form. And while you can use for 1099-QA (Distributions from ABLE accounts), you can only apply for one extension via paper.
Sending your 1099 forms in the wrong format
You can file any 1099 form except 1099-QA on paper. However, you must file electronic forms to avoid penalties if you intend to file 250 or more information returns per year.
For example, suppose you file 270 1099-NEC forms and 230 1098 forms. In this case, you must file 1099 forms electronically, but you can file 1098 forms on paper or online.
So generally, you file your first electronically corrected 1099 or 1099 if you file 250 or more tax returns for a given fiscal year.
Small mistakes to avoid
Below is a list of minor mistakes to avoid when filling out the first 1099 or corrected 1099 form:
Altering or damaging (e.g., stapling, tearing) the length or shape of the paper form: Submit the completed form per IRS requirements.
Filing more than once: The IRS will require you to submit a Form 1099 and a Form 1096 for each refund. You do not need to resubmit these forms unless you are correcting a form.
Entering incorrect information or incorrect format: Complete the form fields according to IRS requirements. You should also follow the number format recommendation: use decimals to display cents and dollars (1000.00 to represent $1000).
Sending any forms other than copy A to the IRS: The IRS does not require you to send copies 1, 2, and B.
Using a Copy, Earlier Version, or Modified Replacement Version of Form 1099: You must submit the updated Form 1099 provided on the IRS website unless you are reporting information for the previous year. Otherwise, the IRS may penalize you for using inappropriate formats.
Filing a name, TIN, and address on your 1099 other than your information on form 1096: Forms 1099 and 1096 must have the same information.
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