The 1099 form is a series of documents the IRS refers to as “information returns” It is a requirement that a filing occur with earnings of at least $600.00 per tax year. Earnings reported on this form can be payments to independent contractors, rental property income, income from interest and dividends, sales proceeds and other miscellaneous income. There are many types of 1099 forms to choose from, the type of form is determined by the source of earnings and or revenue.
With the many looming deadlines that businesses encounter in January along with the ever-changing tax laws, outsourcing the preparation, mailing and e-filing is often a wise choice. The PATH Act ( Protecting Americans From Tax Hike Act), enacted on December 18, 2015 changed the deadline for filing the 1099 Misc. (box 7, nonemployee compensation only) to Jan 31st from a previous March deadline. With the mail and file dates now simultaneous, amendments are more likely to occur due to errors along with the potential for significant penalties. The process of amending would be made much easier with outsourcing.
One common mistake made with the 1099 Misc. filing is that the amount entered in box 7 (nonemployee compensation) is inclusive of expense reimbursements, per diem, etc. The amount entered in this box should be taxable earnings only. In some instances, per diem is taxable and it is best to have a firm with the knowledge to determine which items are indeed taxable.
Some common reasons for a penalty are filing returns: after the due date, without all required or correct information (Missing, incorrect or non - existent TINs), on paper when electronic media is required, and/or on non-compatible electronic media. The penalty are as follows:
- If filed correctly within 30 days of deadline: $50 per form ($532,000 max)
- If filed correctly after 30 days and by August 1, 2017: $100 per form ($1,596,000 max)
- If filed correctly after August 1, 2017: $260 per form ($3,193,000 max)
- If a filer neglects to send forms altogether (to either the IRS or the contractor) when the filer knew it should have (what the IRS classifies as “Intentional Disregard”): $530 per form or 10% of the amount required to be reported on the return (with no maximum)
- If failed to file electronically (businesses that are required to file over 250 1099s of the same type must file electronically): $250 per form.
- If forms are missing TINs (SSN or EIN) or have incorrect TINs, then the IRS can impose fines $260 per form. This fine can be reduced to $50 if a correction is filed within 30 days of the deadline. However this penalty may be waived by showing the failure(s) was due to reasonable cause and not to willful neglect.
In conclusion, outsourcing this task can save time and eliminate any potential risks for penalties on both the tax payer and businesses alike.