The Penalty For Late 1099 Forms

As a small business owner or freelancer, you are juggling SO MANY things! We SEE you. However, it's important to make sure that you recognize your business obligations like filing your independent contractor taxes. These obligations can sometimes include sending 1099 forms to various contacts. With appropriate planning, the filing penalty for late 1099 IRS forms can easily be avoided.

Wait, What Is A 1099 Again?

Form 1099 is a tax form known as an information return. This information return is used one to report monies paid to a third party by a business payee.

Keep in mind that as a freelancer or independent contractor, you are considered to be a business owner by the IRS (Internal Revenue Service). It is your responsibility to be on top of how much taxes you have to pay for 1099 income. For that reason, you may be responsible to issue 1099s to vendors or contractors that you work with.

If you do issue a Form 1099 to an individual or business, that taxpayer must then take this form and report it as income on their own income tax return. Some examples of individuals or businesses that may require a 1099 include independent contractors, landlords, and attorneys.

If you are required but you do not provide a correct statement to the IRS (also known as intentional disregard), it carries a penalty of $560 per 1099 without a maximum penalty. There is a chance you can avoid the penalties if you can possibly demonstrate "reasonable cause" for your failure, but the IRS may not accept your excuse.

For a more complete list, check out the IRS.gov website.

When Are Form 1099s Due?

Form 1099 has various due dates dependent on what type of income you're reporting. Keep in mind that this form is being issued by your business, not you personally. Therefore, you do not have to file Form 1099 if you paid an attorney for personal reasons or to report any personal rents paid.

You can apply for a 30-day extension for filing a 1099 form by completing Form 8809, an Application for Extension of Time to File Information Returns.

Payments to Independent Contractors

If you are reporting payments made to indepedent contractors during a tax year, you must fill out forms 1099-MISC or form 1099-NEC (non-employee compensation) and file it by January 31st of the following calendar year.

For example, if you paid your contractor $700 in total during 2020, you are required to fill out Form 1099 in January of 2021 and file it no later than the 31st of the month. As a heads up, the 1099 is considered filed based on its postmarked date.

Payments to Attorneys

If you are reporting payments made to attorneys during a tax year, you must fill out Form 1099-MISC, box 10. This form is due by March 31st if you file electronically, or February 28th if you file on paper forms.

Payments to Landlords for Business Rent

If you are reporting payments made to your landlord for business rent during a tax year, you must fill out Form 1099-MISC, box 1. This form is due by March 31st if you file electronically, or February 28th if you file on paper.

The 1099 Late Filing Penalty

Oh no -- I missed the filing deadline! What now? Not to fear, you can still file your required 1099s. However, there is a 1099 late filing penalty are sometimes incurred and should be avoided if possible.

The penalties for filing late 1099s are tiered depending on how late your filing is. However, the can definitely add up if you've missed your obligation for several forms. Here's the breakdown of the amount of the penalty:

1-30 Days Late

If you're not more than 30 days late, your penalty is $50 per late form.

31 Days Late - August 1st

If you are 31 days late but it is still before August 1st, your penalty is $110 per late form for tax year 2020.

After August 1st

If it's after August 1st of the following tax year, your penalty is $270 per late 1099. Ouch!

What if I Never File?

It is definitely possible that you don't realize the requirement to file 1099 forms, and unintentionally miss the deadline. If this is the case, your penalty will be $270 per return if it is discovered by the IRS that you didn't file as required.

If you intentionally disregard your 1099 filing requirements, the penalty is $550 per missed filing. These missed filings could easily be uncovered if your tax return was selected by the IRS for an audit. However, I have some good news for you. Electronically filing Form 1099 is extremely simple with the right system in place!

What if I Fill Out Form 1099 Incorrectly?

If you provide incorrect information on Form 1099, you may be charged separate penalties. The most common error is providing the incorrect TIN (taxpayer identification number), which is usually a social security number or EIN number. Make sure to double check your 1099 forms before sending them to the Internal Revenue Service.

How Do I File Form 1099?

The easiest method to file is electronically. In fact, filing electronically is required for those businesses with more than 250 Form 1099s to complete. Even though you likely won't have that many to complete, there are some tech tools that you can utilize to simplify and automate the 1099 filing process.

The first step when you are filing Form 1099 is simple. Track your expenses during the year. Doing this, you can run a report to figure out exactly how much you paid to your independent contractors, attorneys, or landlords. Keeper Tax offers effortless expense tracking, which will allow you to have a trusted bookkeeper looking out for you.

Once you have the number that needs to go on your 1099 form, you can fill it out and file it electronically using services like Track1099 or Tax1099. These services charge anywhere from $2 to $10 per form that you e-file. Along with delivering your 1099 to the IRS, they will also deliver it electronically to your contractor or vendor. Win-win!

How Do I Pay The Penalty?

If you are issued a penalty for late filing of forms 1099-NEC or 1099-MISC, the IRS will notify you via a letter in the mail. Luckily, there will be no interest charged as the penalty is a flat fee. When you receive this letter, it will include instructions on how to pay this penalty both electronically and using a check. The letter will also include a due date.

The Bottom Line

Receiving a penalty from the IRS is never fun. In fact, receiving a letter from the IRS is never fun either! This is why I prefer to get my mail in the form of Amazon Prime deliveries or care packages from my mother-in-law.

However, as an informed freelancer or business owner, you will know your requirements and easily be able to avoid any penalty. If you are penalized by the IRS, I recommend paying your penalty by its due date and learning an important lesson for next year.

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Kristin Disbrow

Kristin Disbrow

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Kristin Meador is a Certified Public Accountant with over 5 years experience working with small business owners and freelancers in the areas of tax, audit, financial statement preparation, and profit planning. While she’s not hiking in the Smoky Mountains or checking out new breweries (@travelingcpachick), she’s working on growing her own financial services firm. Kristin is an advocate and affiliate partner for Keeper Tax.

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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.