Guide On How to Amend 1099 Forms

Form 1099 is an information return that you should file to report certain payments you made to individuals who aren’t your employees. Although there are 20 plus different 1099 tax forms that report the various types of payments, in this article, I will only address a form 1099-NEC (the form 1099-MISC has changed for miscellaneous income, and effective with the 2020 tax year and moving forward). If you file this information form 1099 with the Internal Revenue Service, the IRS will match vendor payments with the income they report on their tax returns. Form 1099-NEC works as Form W-2. When you have employees, you send Form W-2 to them so they can use information on Form W-2 and file their personal tax returns. Similar to Form W-2, if you’re a business owner and use independent contractors for your business during the year, you must provide Use Form 1099-NEC to your contractors or freelancers if you paid $600 or more to them in the following year so they can use them in their tax returns.  

How To Prepare A 1099

Handling your independent contractor taxes is pretty easy.The first thing you need to do to prepare a 1099 is that you make sure you have all of the correct information on your contractors or vendors. Vendors should have already filled out Form W-9 and provided it to you when you engaged their services. In other words, having contractors fill out a W-9 should be one of the first administrative tasks you complete after hiring them. A Form W-9 includes their name, address, and social security number (SSN) or Employer Identification Number (EIN). The W-9 also includes their tax filing entity, so you can know if you need to issue 1099 for those vendors.

Information you need before completing a 1099 is as follows:

  • contractor’s SSN or EIN
  • the total amount you paid them during the year
  • contractor’s legal name
  • contractor’s address

Once you’re provided with forms W-9 from your contractors, start filling them out with your federal Tax ID number, the amount of money paid to the contractor, which will be entered in Box 1 under the title “Non-employee compensation”. If you withheld any pay from your contractor (e.g. backup withholding), you will also need to fill in Box 4 or Box 5 for federal or state income tax you withheld.

The next step is to send out the forms to the contractor and to the IRS. You must send the form, specifically, a Copy B of form 1099-NEC, to the contractor no later than February 1st.  If you miss this deadline, you will be ending up paying the IRS penalty for late submission and your contractors will end up paying and filing their taxes late. You will also mail (or electronically file) Copy A of each Form 1099-NEC and form 1096 to the IRS no later than February 1st. A Form 1096 summarizes the totals from your contractor payments, and the IRS uses Form 1096 to track every physical 1099 you’re filing for the year. Keep in mind that you retain Copy C for your own records.

I missed the 1099 Filing Deadline!

If you are a filer that missed the due date, it’s not the end of the world, but you will have to pay penalties for late 1099 forms as follows:

  • $50 if you file within 30 days
  • $100 if you file more than 30 days late, but before August 1
  • $260 if you file on or after August 1

It should be noted that additional penalties may be given if you file on paper when you’re required to file electronically, you report an incorrect TIN, don’t report one at all, or if you file paper forms that aren’t machine-readable.

I Found A Mistake On A 1099 Form That Has Already Been Filed!

This happens. It’s not unusual. Contractors sometimes fill out a form W-9 incorrectly. Your assistant puts the wrong dollar amount on the form. Whatever the reason may be, the form must be amended promptly. It’s not too hard to amend a 1099. You just need to fill out a corrected one and include that copy as well as a new form 1096 when you mail them out. Specifically, you should put a checkmark in the “corrected” box on the top of form 1099. This will let the IRS know that the firm has been corrected.  Be sure that you don’t include a copy of the original. As long as you put a checkmark in the “corrected” box and include form 1096, the requested changes will be made. You must file the 1096 form along with the corrected return. Use a separate Form 1096 for each type of return you are correcting.

If you e-file as a filing method and need to make a dollar amount correction, you can file your correction on the e-file site.

The IRS splits into two errors – Type 1 and Type 2. Depending on the type of error, you'll have different ways to correct the errors.

Type 1 Errors

If you reported incorrect money amounts, code, checkbox, or if you filed a return by a mistake, you made a Type 1 Error. To correct a Type 1 Error, you should take the following steps.

  1. Prepare a new corrected form 1099-NEC and mark X in the “corrected” box.
  2. Record the correct information and other information like you did in the original return.
  3. Prepare a new Form 1096 as well with corrected information.
  4. Mail the corrected Form 1099-NEC and 1096 to the IRS and any required state tax departments.  
  5. Mail or hand in the corrected Form 1099-NEC to your independent contractor.

Type 2 Errors

Type 2 Errors happen when Taxpayer Identification Numbers are missing or there is incorrect information i.e. incorrect payer name or incorrect payee tin.

To correct a Type 2 Error, you should do the following.

  1. Prepare a new corrected form 1099-NEC and mark X in the “corrected” box.
  2. Enter the payer, recipient, and account number information exactly as it has appeared on the original incorrect form. Record the correct information and enter 0 for all money amounts.
  3. Prepare a new Form 1096 with corrected information.
  4. Include one of the following phrases at the top of form 1096, “filed to correct SSN”, “filed to correct name”.
  5. Mail the corrected Form 1099-NEC and 1096 to the IRS and any required state tax departments.  
  6. Mail or hand in the corrected Form 1099-NEC to your independent contractor.

Do I have to submit 1099 forms with my state?

Depending on where your business is located, 1099 firms should be submitted with your state. Consult with a tax professional and make sure you’re compliant with your state’s 1099 filing requirements or use a tax filing service.

Take away

It’s always better to file form 1099 correctly in the first place. The best way to prevent a mistake is to request an updated W-9 form before completing a 1099. This way, you can avoid errors that may require you to file an amended copy later. If you have any questions, all of the necessary forms and instructions are available through the IRS website.

Soo Lee

Soo Lee

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Soo has over 10 years of experience in publicly traded companies and public accounting firms offering tax, accounting, payroll and advisory services to clients in diversified industries including manufacturing, wholesale/retail businesses, construction, real estate development and investment, banking, finance and professional/legal consulting service. In Particular, when Soo was at Pricewaterhouse Cooper, Soo worked with many foreign owned U.S. companies and advised clients on a broad range of issues including federal and state tax minimization especially through R&D tax credit, determination of the optimal structure for new foreign investments, restructuring and reorganization for existing operations.

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Note: at Keeper Tax, we're on a mission to help freelancers overcome the complexity of their taxes. That sometimes leads us to generalize tax advice. Please reach out via email if you have questions.

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