Along with the changes to IRS Form W-2 for tax year 2016 and thereafter under the Protecting Americans from Tax Hikes (PATH) Act of 2015, there have been changes to the deadline and penalties associated with IRS Form 1099-Misc, and Form 1099-K as well.
The following is an overview by A.G. Tax analysts on the updated deadline and penalties for IRS Form 1099-Misc. It is important that U.S. businesses required to file information returns are aware of these changes to avoid any tax issues and penalties.
Form 1099-MISC – Miscellaneous Income
Among other items of income, the 1099-MISC form is used to report payments made over $600 to independent contractors. The Form reports the total amount of payments a business pays to another person or corporation or any other entity during the year for the services they have provided. For example, when a freelance writer writes an article for a publishing company, the company must provide the writer a Form 1099-Misc with the amount paid reported on it.
In the past, a payer of income was required to provide the Form 1099 to the recipient by January 31, however, did not have to file them with the IRS until February 28 if paper filed and March 31 if filed electronically.
Updated Deadline for Form 1099-Misc
Beginning with the 2016 reports (due in 2017), IRS Forms 1099-MISC are required to be filed by the 31st of January if there is an amount reported in Box 7: Non employee Compensation.
If there are no amounts in Box 7, then the deadline remains February 28 for paper filings or March 31 for electronic filings, however, the slips are required to be provided to the recipients by January 31.
U.S. taxpayers receiving and filing Form 1099-Misc should also keep in mind that many U.S. states have also adopted the federal deadline. Filers should check the State instructions for the state in question to determine the due date of the State copies.
Updated Penalties & Fine for IRS Form 1099-Misc
When it comes to IRS Form 1099-Misc, there are penalties and fines applicable not only in case of late filing but also; if certain information is missing or incorrect information has been provided. This includes but is not limited to incorrect Taxpayer Identification Number (TIN). Penalties and fines are also applicable if the filer has not filed electronically when they should have.
Just like Form W-2, penalties apply depending on the date when the required Form 1099-Misc is filed after deadline. This includes:
- Within 30 days after deadline: $50 per Form 1099, ($532,000 maximum, $346,000 in case of small businesses)
- After the 30-day period & by the 1st of August: $100 per form ($1,596,000 maximum, $1,064,000 in case of small businesses)
- After August 1st: $260 per form ($3,193,000 max, $2,129,000 in case of small businesses)
(*As per IRS, a business making less than $5 million in the last three consecutive years is considered a small business)
Having said that, the penalty or fine may be increased by certain limits in the following situations:
- If the business taxpayer deliberately misses sending the form 1099 to the IRS and the contract employee, the penalty will be either 10% of the amount required to be reported on the return or $530 per form, whichever is greater.
- Business taxpayers filing more than 250 Form 1099’s of a particular kind, such as: Form 1099-Misc, need to file them electronically. If the business does not comply it could be subject to a fine of $250 per Form 1099.
- If the required ITIN, SSN or EIN is missing or incorrect on any type of Form 1099, the IRS can levy a fine of $50 per form. However, if this error is corrected within 30 days of filing then the penalty is reduced to $15. The maximum penalty that may be imposed for one person for all such failure in a calendar year is limited to $250,000.
Exceptions to Penalties & Fines
Under certain situations the business taxpayer may not be subject to any penalties or fines, as follows:
- If there is a reasonable cause for the failure to file and not a case of willful neglect. There must be proper documents to validate the situation. Additionally, the taxpayer must also show he/she acted in a responsible manner.
- If the person made an error that does not hinder the processing of the IRS Form 1099 or the taxpayer’s return. This will NOT include errors related to TIN, Payee’s surname, or any money amounts.
Furthermore, under the ‘De minimis rule’ if the Forms 1099-MISC were filed on time but there were certain minor errors, which were corrected by the 1st of August, then penalties do not apply to the greater of the first 10 information returns or 0.005% (1/2 of 1%) of the total number of information returns filed.
With the updated deadlines for certain IRS forms being executed for the first time, it is likely to create a sudden rush to tax practitioners’ offices, therefore it is highly recommended that U.S. business taxpayers should reach out to their tax practitioners at their earliest in order to file the required IRS forms by the new deadline.
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