Small business owners and freelancers who work with independent contractors have an extra item to check off their tax-time to-do list: issuing 1099 forms.
With all the stress of filing your own self-employment taxes, this obligation can easily fall to the wayside.
Unfortunately, not filing a required 1099 can cost you real money — especially if you don't get things under control in time.
The 1099 deadline: When are your forms due?
There's one due date you have to keep in mind for 1099s. That's January 31st: the deadline for sending them out to the person (or company) you paid.
Keep in mind: This date can change in years when January 31st is on a weekend or holiday. In that case, the deadline gets shifted to the first business day after.
Unfortunately, this date isn't always the be-all and end-all of 1099 filing. That's because Form 1099 comes in multiple types, and issuing each type means dealing with multiple copies:
- Copy A: For the IRS (called an "information return")
- Copy B: For the person or company you're paying (called a "payee statement")
- Copy C: For your state (not required in every state)
For some business owners, that can mean juggling multiple 1099 due dates. Here’s a snapshot of them:
Now, let's break down these deadlines.
Deadlines for Form 1099-NEC
- 1️⃣ January 31st: All copies, no matter how you're filing
For most self-employed people, filing a 1099 means filing Form 1099-NEC specifically. It’s used to report "nonemployee compensation" — meaning, payments to vendors and independent contractors.
Deadlines for Form 1099-MISC
- January 31st: Your recipient copy, no matter how you're filing
- February 28th: Your federal and state copies, if you're paper filing
- March 31st: Your federal and state copies, if you're e-filing
It used to be more common for business owners to issue 1099-MISCs. These days, though, they're fairly niche.
Form 1099-MISC reports miscellaneous income. For self-employed people, that's likely to mean one of two things:
(If you paid a landlord, you'll fill out Form 1099-MISC, box 1. Payments to an attorney as part of a legal settlement, on the other hand, go inbox 10.)
Why 1099-MISCs are due later than 1099-NECs
As you can see, non-recipient 1099-MISCs are due later than 1099-NECs. That's because the kinds of miscellaneous income you report on the form can take longer to verify than plain old contractor payments.
Check out our guide to 1099-NEC vs.1099-MISC if you want a more detailed comparison of the forms.
Penalties for late 1099s
What if you missed one of the 1099 deadlines?
Never fear: you can still file your required 1099s. More on that later! Just know that there's a late filing penalty to deal with.
The amount of the penalty will increase depending on how late your filing is — and how many tax forms you've failed to file.
Important note: You get charged separate penalties for the IRS copy and the recipient copy. So if you're 20 days late on sending both copies of a single 1099-NEC, your penalty would be $50 twice over: $100.
Here's a summary of the penalties you can face:
As you can see, there's a maximum penalty you can be assessed in a single year. This varies depending on the size of your business. (For the IRS's purposes, you have a "small business" as long as you've earned less than $5 million a year, on average, over the last three tax years.)
To make things simpler, we'll say you operate in Florida, where you don't have to issue 1099s to your state.
To help you run your store, you work with the following contractors:
- An assistant to manage your listings
- A writer for product copy
- A design agency for your banners and logos
- A social media strategist for your Instagram
In addition, you:
- Pay rent on a studio space
All in all, that's four 1099-NECs and one 1099-MISC you should be issuing. What happens if you don't get them in on time?
Let's take a look at the penalties, which get heftier the longer you wait:
If you file 1-30 Days late
If you issue 1099s just a little late — within 30 days of the deadline — you'll pay $50 per form. The maximum penalty for small businesses is $194,500.
Let's go back to your example above. Say you file your five required forms within a week of the due date, sending in both your recipient and IRS copies at the same time. You pay $50 per form, per copy, which makes your total penalty $500.
If you file at least 31 days late (but before August 1st)
The second tier of penalties kicks in if you're at least 31 days late, but you get the forms in before August. You'll pay $110 per form. For small businesses, this tier caps out at $556,500.
In our online seller example, waiting a couple of months to file your recipient and IRS copies gives you a total penalty of $1,100.
If you file August 1st
August 1st is exactly 182 days after the January 31st deadline. Wait that long to file, and you're looking at a penalty of $270 per form. The max penalty is $1,113,000 for small businesses.
Let's go back to our example. Waiting till fall to send all five 1099 forms to both the IRS and your recipient gets you a penalty of $2,700.
That's $1,600 more than you'd be paying if you'd filed them within 30 days!
Penalties for “intentionally disregarding” your 1099s
As you can see, waiting too long to file your 1099s can saddle you with some substantial penalties.
Unfortunately, the fees don't stop there. The IRS can ding you even more if it believes you engaged in intentional disregard of filing requirements.
In that case, the penalty is $570, and there is no limit. Intentionally disregard both copies for the five 1099 forms that you're supposed to file, and you'll be paying a whopping $5,700.
What counts as intentional disregard?
The IRS knows it's possible to not realize you're required to file the form and miss the deadline by accident.
Intentional disregard, however, means you knew you were required to file the forms and purposefully chose not to do so.
How can the IRS find out if you're guilty of this? One possibility is if you tell them yourself.
When you fill out your Schedule C, you'll have to check a box to indicate whether or not you were required to file any 1099 forms. This question can be found on line I of the form.
On the next line down, you'll have to check whether or not you actually filed any 1099s.
If you checked "Yes" for line I, but "No" for line J, you're essentially tattling on yourself to the IRS.
Another clue is taking a large write-off for contractor payments but don’t report any 1099’s. It’s not a guarantee the IRS will audit, but it could raise red flags.
Penalties for incorrect 1099 forms
While we're on the subject of 1099 penalties, not filing them isn't the only mistake that can cost you.
Incorrect 1099’s are penalized on the same schedule as returns that are filed late. For example, pretend you send in a form with the wrong Tax ID Number for your payee. Correct it within 30 days, and you'll be charged $50. Fixing it after 31 days (but before August 1) will cost you $110. And so on.
The same goes for forms that aren't machine-readable: your penalty depends on how long it takes you to realize your mistake and send in the correct version.
Here's some good news, though. Different types of 1099 penalties won't stack — you'll only have to pay the highest penalty you're assessed on a single form.
For example, you filed a 1099-NEC 30 days late ($50 penalty). You submitted it with the wrong TIN for your contractor and didn’t correct it till mid-August. ($270 penalty). You'd only pay $270, not $320 ($50 + $320).
Without further ado, let's take a deep dive on common errors to watch out for — and how to avoid making them.
✘ Incorrect TINs
You can wind up dealing with separate penalties if you fill the wrong information in the form.
The most common error? Providing the incorrect Taxpayer Identification Number (TIN) for your payer — usually their Social Security Number (SSN) or Employer ID Number (EIN).
These numbers are used to match up your form to the payee's tax return: it's how the IRS makes sure they're reporting all their taxable income. That's why wrong TINS are penalized so harshly.
💡How to avoid this penalty: Send out W-9s and proofread your form
Send out W-9 forms to all of your contractors before you issue them any payments.
This form is a "Request for Taxpayer Identification Number and Certification." It'll ask them to supply you with their correct TIN, on Part I of the form.
Of course, getting the right numbers is only half the battle. Before you file your 1099s, do yourself the favor of double-checking you filled in the right TIN.
Forms that aren’t machine-readable
If you're using paper forms, it's tempting to just print out a 1099, fill it out, and call it a day.
Unfortunately, pulling up a form from online can actually get you penalized. That's because the IRS uses computer-scanning software to process all their forms. Random printouts — even from the IRS website itself — won’t be machine-readable.
💡How to avoid this penalty: Pay for official forms (or just file electronically)
If you don't want to file electronically, make sure you have the right version of the form. Buy them from an office supply store.
You can find them for around $30 for a pack of 50. And yes, the cost of buying these is tax-deductible.
To keep track of your business write-offs, try Keeper. Our app will automatically scan your purchases for work-related expenses, whether they're as small as a pack of paper 1099-NECs or as large as your biggest contractor payment.
How to pay 1099 penalties
If you're slapped with a penalty for a late 1099, the IRS will let you know via snail mail.
You'll get a letter called Notice 972CG. Expect it to include:
- The amount of your penalty
- A due date for paying the penalty
- Instructions for paying electronically or by check
- A toll-free number to contact the IRS
What to do if you get charged the wrong penalty amount
If the IRS charged you the wrong penalty amount, you don't have to let it slide. You can dispute it by either writing a letter or calling the toll-free number on your Notice 972CG.
Whether you're sending a letter or hopping on a phone call, you'll need to provide:
- What penalty you want reconsidered
- Your explanation of why the penalty was wrong
How to get out of a penalty
Once you see Notice 972CG in your mailbox, it still might be possible to get out of paying a penalty. The IRS can reduce what they charge you — or even waive it entirely — if you can show "reasonable cause" for your late filing.
Valid reasons for getting out of a penalty
Some acceptable reasons might include:
- Extraordinary circumstances like fire, floods, and other accidents
- A death or serious illness that affected your business
- Your inability to get the records you needed to file
Providing proof for why you were late
You'll need to provide some proof — for example, hospital records or documentation of natural disasters.
One quick note on the third example of reasonable cause: From the IRS's perspective, you're responsible for gathering the information you need to file your 1099s — including your payees' tax ID numbers.
If you filed late because you didn't have their TINS on hand, you'll need to prove you tried to get them by sending them a W-9. Email or phone records documenting that you requested the contractor’s information is sufficient.
To contest your penalty, respond to IRS Notice 972CG within 45 days.
How to file a 1099 after the deadline
Late on issuing your 1099s? Here's what to do if you don't want to watch the penalties balloon.
Step #1: Commit to filing electronically
Electronic filing is required for businesses filing more than 250 forms.
You probably won't have that many to deal with. Still, electronic filing is faster and easier than doing it the old-fashioned way.
Step #2: Gather your information
One crucial part of this is the info from your W-9s, including your payees' tax ID numbers.
Besides this, you'll also need to figure out exactly how much you paid to the recipients of your forms, whether they're independent contractors, landlords, or attorneys.
Step #3: Find an e-filing service
These services charge anywhere from $2 to $10 per form — which is, of course, tax-deductible.
Along with getting your 1099 to the IRS and state agencies, they'll also deliver it to your contractor or vendor.
How to get an extension from the IRS
Next time you sense the 1099 deadlines sneaking up on you, you can request an extension to buy yourself 30 extra days.
There are two separate processes for this: one for an extension on your recipient copy and another for an extension to file with the IRS.
Getting an extension for providing 1099 recipient copies
You'll need to send a letter to the IRS explaining why you need the extension.
Along with your reasons for the delay, you'll need to provide the following information for each recipient:
- Taxpayer Identification Number
- Type of form: 1099-NEC or 1099-MISC
You'll also have to specify that you're asking for an extension on your recipient copy and sign the letter.
Getting an extension to file the 1099 with the IRS
You'll need to complete Form 8809 (Application for Extension of Time to File Information Returns).
This should be postmarked before the deadline for the federal copy of the form: January 31st for the 1099-NEC and February 28th (paper) or March 31st (electronic) for the 1099-MISC.
Sending in the form grants you one automatic 30-day extension.
Asking for a second extension on your IRS copies
You can send in a second Form 8809 for an additional 30 days. But unfortunately, this extension isn't automatic. You'll need to show "reasonable cause" for the late 1099, which can be one of these five reasons:
- You work in a federally declared disaster area, and your business was affected
- You were affected by fire, casualty, or a natural disaster.
- The person responsible for filing died, became seriously ill, or suffered some other “unavoidable absence” that made it impossible to file
- It was your first year running the business
- You didn't get the information you needed in time to file
Indicate your reason in box 7 of the form.
Extensions can help in a pinch. But whether or not you get one, 1099 penalties don't have to snowball into a financial disaster.
If you are penalized by the IRS, just pay your penalty by its due date and treat it as a lesson for next year.
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