Generally, the IRS wants the taxpayer to ensure that all the information provided on 1099 forms are accurate and filed on time. Though the penalties are mainly for the errors on the forms the IRS also fines for late submission of forms, missing documents in forms, or incorrect taxpayer details.
Penalties for Failing to File Form 1099
When you miss to file or late to file Form 1099 by the due date and you cannot prove the reasonable cause to the IRS, then you will be subject to a penalty. Apart from late filing, the penalties of 1099 Form is also applied when you include incorrect information on a return or when you fail to include all the required information that should be shown on the return.
Otherwise, the penalties also applied if you are paper filing the tax where it should be filed electronically. And when you report an error TIN or missed to report a TIN or you file to file paper forms that are machine-readable. Listing the penalties that the taxpayer must be aware of:
- If the taxpayer files correctly within 30 days of the deadline then $50 for each form with a maximum penalty of $532,000 ($186,000 for small business)
- If the taxpayer files after 30 days before the deadline of August 1 then $100 per each form. The maximum penalty is $1,596,500($532,000 for small business)
- If the taxpayer files after the deadline of August 1 or not then the maximum penalty is $3,193,000 ($1,064,000 for small business). These penalties are applicable to recipient copies of Form 1099 and also IRS copies.
Form 1099 Corrections
The tax filer can correct the mistakes in the Form 1099 before the due date of every tax year. When you need to file a Form 1099 correction and failed to do so, you will be subject to the same penalties similar to Form 1099 late filers. Unless the tax filer proves with a reasonable cause for missing or incorrect Form 1099 correction, the tax filer would be fined for filing late, failing to add the required information, or paper filing the form where you need to e-file. When you are not required to file the Form electronically, ensure that the submitted paper forms are machine readable. Failing to do so, will also attract fine towards the tax filer.
If you are not aware when to correct your 1099 form, just read on. You must correct your 1099 forms if the Form 1099 contains errors, error tax amounts, payees, codes, TINs or mailing address then it needs to be corrected. The tax filer must ensure that the corrections must be made as soon as he/ she notice the error in the form or when the form is rejected by the IRS.
Exceptions to Penalty
Having discussed more the 1099 penalties and corrections, as a taxpayer you must also know various exceptions that are acceptable by the IRS when you face a penalty.
- The penalty may not apply that you can prove due to a reasonable cause and not to willful neglect.
- A negligible error is not considered as a failure to include the correct data.
- Though you cannot prove the reasonable cause, the penalty for failure to file correct form may not apply to certain scenarios:
- When you filed the information returns on time.
- When you have either failed to include the information required on a return or when included error information.
- When you filed the corrections by August 1.
Note that, according to the IRS guidance, the tax filers must prove that they have acted in a responsible manner both before and after filing the failure form. But all these form 1099 penalties and corrections can be avoided if you have acted smart and double checked the forms before submitting them to the IRS.