1099 filing is here and as you may know, the IRS has many stipulations. Recently, they have increased penalties and stiffened filing requirements. If you fail to file a correct information return by the IRS deadline (and cannot show reasonable cause), you may be subject to penalties. For the 2018 tax year the deadline to submit information to the IRS is January 31, 2019. Not only do penalties apply for failure to file timely, they also apply if you fail to include all required information, or include incorrect information on a return. A few other ways that could result in penalties are:
- If you file on paper but were required to file electronically
- Failure to report a Tax Identification Number (TIN) or if you report an incorrect TIN.
- Failure to file paper forms that are machine readable.
The Penalties When You File the Correct Information Return After the Due Date:
- $50 per information return if you correctly file within 30 from the due date, the maximum penalty is $547,000 per year ($191,000 for small businesses, defined below)
- $100 per information return if you correctly file more than 30 days after the due date but before August 1; maximum penalty $1,641,000 per year ($547,000 for small businesses)
- $270 per information return if you file after August 2 or you do not file required information returns; maximum penalty $3,282,500 per year ($1,094,000 for small businesses)
Additionally, if you do not file corrections and you do not meet any of the exceptions (described below), the penalty is $270 per information return.
Small Business – Lower Maximum Penalties:
Small businesses do have lower maximum penalties if their average annual gross receipts for the 3 most recent tax years were $5 million or less.
Exceptions to the Failure to File Penalty:
- You must show failure was due to an event beyond your control or due to significant mitigating factors. You must show that you acted in a responsible manner and took steps to avoid the failure.
- An inconsequential error or omission which are those that does not prevent or hinder the IRS from processing the return, from correlating the information to the payee’s return or from otherwise putting the return to its intended use.
De minimis rule for corrections if you (a) filed those information returns timely, (b) failed to include all the information required or included incorrect information, and (c) filed corrections by August 1.
Safe Harbor for De Minimis Dollar Amount Errors:
If one or more dollar amounts are incorrect on an information return filed with the IRS or on a payee statement, no correction is required if:
- The difference between the amount filed and reported and the correct amount is no more than $100.
- The difference between the amount filed and reported for tax withheld is no more than $25 of the correct amount.
No Automatic Extensions for Certain Filings:
New for 2018, the IRS has eliminated 30-day automatic extensions to file Forms 1099-MISC reporting non-employee compensation in Box 7. Taxpayers may only request a non-automatic extension of time on paper Form 8809 which describes the need for an extension.
If you have any questions on the 1099 rules or processes please contact a member of our Accounting Services team today.