Starting in 2016, the IRS implemented new filing requirements for most information returns, including Forms 1098, 1099, and W-2/W-3. They also increased penalties related to these forms and made penalties subject to inflationary adjustments. Penalties are based on the filing date of correct information and date that forms are furnished to the payee. Businesses can be assessed two separate penalties if they file incorrect or late forms, one for the forms sent to the IRS and one for the forms sent to the payee.
The Form 1099 Miscellaneous is one of the most misunderstood forms. Business use this form to report payments for services in excess of $600 to non-employees. Payments to attorneys, and payments of rent, prizes or awards are also reported on this form. Payments for royalties in excess of $10 also appear on this form. For a complete list of deadlines and reporting requirements refer to this IRS page For tax year 2018, most Form(s) 1099 must be sent to the payee/recipient by January 31, 2019. Forms are also due to the IRS on that date if amounts are reported in Box 7, non-employee compensation.
What if I File my 1099s Late?
Filing late or incorrect forms can be very costly. Small Businesses with Gross receipts of $5 million or less, are subject to penalties as follows:
| Filing Date | Fee Per Return | Maximum Fee |
|---|---|---|
| Filed no more than 30 days late | $50 | $187,500 |
| Filed 31 days late through August 1 | $100 | $536,000 |
| After August 1 or not at all | $260 | $1,072,500 |
| Intentional Disregard | $530 | No Limitation |
Per IRS, Code Section 6721, penalties may apply if your business does not file correct information by the due date and has no reasonable cause for failing to file, doesn’t include taxpayer identification numbers or includes incorrect numbers, doesn’t file machine readable paper forms or files on paper when required to file electronically. IRS Code Section 6722 addresses penalties for not providing correct payee statements when information is missing or incorrect or forms are filed late.
Non-filing of Form(s) 1099 has become an increasingly important area of concern for the IRS. It is estimated that large numbers of recipients of these funds are not reporting their income and paying FICA tax on that income, leading to a large tax deficit. All business tax returns now ask 2 questions related to these forms, 1) Did you make any payments in 2018 that would require you to file Form(s) 1099? 2) If Yes, did you or will you file required Form(s) 1099?
How Can I Make Filing Easier?
The easiest way for businesses to meet their filing obligations and avoid penalties is to obtain a Form W-9 from any provider of services prior to issuing any payment. If payee refuses to provide a W-9, or if the business is later notified that the Taxpayer Identification Number is invalid, the business should withhold 24% (backup withholding) and remit it with Form 945 by January of the following year.
Corporations generally do not receive 1099’s for services, but there are payments to corporations that must be reported on a Form 1099. Payments of $600 or more to Partnerships, LLC’s, individuals and attorneys must always be reported. In the past, owners of rental property have been exempt from the requirement to file these forms for services related to their rentals. This year real estate professionals or actively engaged property owners may want to file these forms as the new Qualified Business Income deduction has not been clearly defined for rental properties and filing this form may be one of the criteria for proving that your rentals are operated as a trade or business and claiming the 20% QBI deduction at tax time.
Contact a CPA in Boulder for Help Filing 1099s!
This information is provided for general information only and should not be construed as specific tax advice as your situation may vary. If you need help filing your 1099’s for 2018 or if you are being contacted by the IRS for back taxes, contact Karen Schwimmer, CPA today!