What Happens If I Don’t File A 1099?

What Happens If I Don’t File A 1099?

Contents

The 1099 form covers payments you receive that may potentially be taxable. It is a series of information filing forms that the Internal Revenue Service refers to as "information returns." This information return program is a kind of two-way verification system that can be the most powerful weapon to prevent taxpayers from underreporting their income. IRS computerized program automatically checks the amounts on the information returns the agency received against the income reported on your tax returns. If you’ve reported less income shown in the information returns, you can expect a letter demanding payment of additional taxes, interest, and penalties.  

What Happens If I Forget To File A 1099 On My Tax Return?

Again, if you made or received a payment during the calendar year as a small business or self-employed freelancer, you are most likely required to file a return to the IRS.

The first thing you remember is, the 1099 form you receive is always reported to the IRS. Whenever a 1099 form arrives, it is attached to your social security number or taxpayer-identification number. This means that the government knows about your income even if you forget to include it on your tax returns. Don’t panic, though.

Let’s say you catch the error before the IRS contacts you. One thing you should do is you must file an amended tax return on Form 1040X, Amended U.S. Individual Tax Return. You have to include a copy of the 1099 with the amended return. Before filing a Form 1040X, Be sure that you wait until you receive a refund from the original return if you’re supposed to receive one.

If the IRS catches the error before you know that you forgot to file a 1099, the IRS will notify you and retroactively charge you penalties and interest as well as additional tax on your underreported 1099 income. If this is the case, you don’t need to file an amended 1099 tax return.    

Do I pay any penalty for late tax payments?

Yes, if you miss the due date to file your form, this results in additional tax liability or 1099 late payment penalty of 0.5 percent per month. The penalty is capped at 25 percent.  

Types of 1099 Forms

There are about 20 different 1099 forms that report the various types of non-salary income you may receive throughout the year. Here are a few of the main ones.

1. Independent Contractor Income (1099-NEC)

The most popular is the 1099-NEC (or previously used tax form 1099-MISC for miscellaneous income). If you’re an independent contractor or freelancer, you should receive a Form 1099-NEC from each business client that pays you at least $600 during the year. In other words, if you paid an independent contractor more than $600 in self-employment income during the year, you’ll need to complete send a form 1099-NEC to your payee by January 31st in the following year. You need a Form W-2 to file with your return.

2. Interest and Dividend Income (1099-INT and 1099-DIV)

When you own interest-bearing accounts, a portfolio of stock investments, or mutual funds, you may receive a Form 1099-INT or Form 1099-DIV to report the interests, dividends, and other distributions you receive during the year.

3. Withdrawals from a retirement account (1099-R)

When you withdraw money from your traditional IRA, the money you receive could be taxable. You will receive a form 1099-R that shows your total withdrawals for the year. The form also covers other types of distributions you receive from pension plans, annuities, and profit-sharing plans. Usually, the 1099-R will report the taxable amount of the distribution on the form itself and will report the amount of federal tax that was withheld.

4. Government Payments (1099-G)

The most two popular government payments that issue form 1099-G are unemployment income and state income tax refunds. If you receive unemployment income during the year, you must report the entire amount that your state includes on the 1099-G form in your taxable income.

If you received a state refund for the prior-year tax return, you only include your state refund in your taxable income if you claimed state income taxes using itemized deduction in a prior tax year.

5. Debt Cancellations Income (1099-C)

When a creditor cancels a portion of your outstanding debt, this should be added to your taxable income when you file taxes in the following year. This is because the IRS treats the debt cancellation as income which can be taxable if you don’t prove your insolvency.

6. Real Estate Transaction Income (1099-S)

The IRS makes sure that whoever sells the real estate property in the current year reports the correct amount of capital gains in their tax returns. If your property was primarily for your own residency over 2 years, the real estate attorney doesn’t seem to issue 1099-S to you and report to the IRS but you will always to make sure if you received any 1099-S if you had any real estate transaction in that particular year.

Who needs to fill out a 1099 form and send to the IRS?

As mentioned above, taxpayers including contractors and partnerships could get a 1099 if they receive payments for a variety of reasons. Now, who then needs to prepare a 1099 form and send it to the IRS? In general, if you hired a contractor or freelancer and paid them more than $600 in a year, you’re responsible to be an issuer of a 1099-NEC to your non-employees. In other words, the payer fills out the 1099 form. Sometimes, however, service providers can be a C corporation or S corporation. In this case, you don’t need to file Form 1099 to those corporation vendors.  

My client asks me to fill out a W-9 form and he insists this is for a 1099 form. What is a W-9?

Yes, because you’re a vendor who provides services, you will receive a 1099 in the following year. In order to fill out a 1099 form correctly, your client needs information about you and your business.

Take away

A 1099 is an “information form”, used to report non-salary income to the IRS for federal tax purposes. All contractors who work for more than $600 should receive a 1099. When you’re an independent contractor and you receive a form 1099, you must report the income listed on your 1099 on your personal income tax return. Keep in mind that you still need to report all your income even if you did less than $600 of work for a client and never received a 1099. For more information, read the General Instructions for Certain Information Return on the IRS.gov website.  Contact a tax professional or CPA for more help on tax filing if you are uncertain or need tax advice.

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.

What Happens If I Don’t File A 1099?

Soo Lee

Soo Lee

websitetwitter-link

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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