Here’s What Happens if You Don’t File a 1099
For lots of freelancers, contract labor is the key to stay on top of things professionally. From Google Ads experts to personal assistants, business attorneys to web designers, contractors can be the key to success..
If you're a self-employed person or small business owner who works with contractors, you might have to file 1099 forms at tax time.
These forms are due by January 31. But what happens if you miss the deadline?
In this article, we'll break down what happens if you forget to file a 1099. But first, let's talk about what 1099s are in the first place.
How 1099 forms work
Before we dig into the consequences of not filing a 1099, let's look at the basics.
Long story short, IRS Form 1099 is an "information return" used to report non-employee income.
You’re required to file one if you've paid someone who's not your employee. That way, the IRS knows the person you paid earned some taxable income.
The types of 1099 form you should know
There are multiple types of income for non-employees, from lotto winnings to unemployment benefits. That's why the IRS came up with multiple types of 1099 forms.
All in all, there are about 20 different 1099 forms. Let's quickly go over the two most important ones.
🧾 Form 1099-NEC
The most important form, for our purposes, is the 1099-NEC. This reports payments made to independent contractors.
If you're a freelancer, you'll likely get a few of these from your own clients. But if you work with any contractors, you might have to send out a few of them too.
🧾 Form 1099-MISC
There's also a small chance you'll have to file a 1099-MISC. Before the 1099-NEC was created, independent contracting income was reported on this tax form.
These days, the 1099-MISC is used for miscellaneous income. You'll only have to deal with it in a few cases — for instance, if you give out a cash prize or settle a legal dispute out of court.
You can read more about the difference between these two forms in our article on 1099-NECs vs 1099-MISCs.
Who needs to file a 1099?
You’ll have to file a 1099-NEC for a freelancer or contractor if:
- 💰You paid them at least $600
- 🏢They don't have a corporation (and aren't a lawyer)
- 🏦You paid them through cash, check, or a direct bank transfer
It’s important to know what your filing obligations are, because when you fill out your Schedule C, you'll be asked whether you were required to file any 1099s. You'll find this question on line I.
Some of the requirements may look hyper-specific, so let’s unpack them one by one.
💰You paid a contractor at least $600
This requirement is for the whole tax year. It doesn't matter how the payments were split up.
While we're on the subject of contractor payments and taxes, keep in mind: you can use what you spend on contract labor to lower your tax bill.
Tracking these payments can be a hassle — but it's required to get your write-offs. That's why we built the Keeper Tax app.
The app automatically identifies all the tax-deductible transactions on your accounts. Whether you're Venmoing your blog editor or making a direct deposit to your office cleaner, we'll help you write off all your contractor payments.
🏢 The contractor doesn't have a corporation (and isn't a lawyer)
You don't need to issue 1099s to a C corporation or an S corporation — unless that corporation is a law firm. (If you pay for legal services, your lawyer always gets a 1099-NEC, even if they do have an S corp or a C corp.)
Attorneys aside, corporations are exempt. But determining whether a vendor is a corporation can be trickier than it looks.
Why? Because some LLCs are taxed as S corps, which is enough to make them count as a corporation for 1099 purposes.
The form requires the payee to list their tax status, in addition to the other information you’ll need to file their 1099’s.
Still having trouble figuring out the tax status of an LLC? You can issue a 1099 just to be safe. There's no penalty for filing one when you weren't required to.
🏦You paid with cash, check, or direct bank transfer
Why does the payment method matter?
If you're paying a service provider with a debit card, credit card, or payment app, they'll get a 1099-K instead. These are sent through the third-party payment processor you used, like MasterCard or PayPal. You won't have to file a form at all.
Essentially, paying "directly" from your bank account, or in cash, means you have to issue the 1099. Using a third-party, on the other hand, takes the onus off of you.
Will the IRS know if you don’t file a 1099?
Now you know whether you're supposed to file a 1099. What if you don't do it?
There are several ways the IRS gets tipped off about unfiled 1099s. Here are a couple:
✍️ If you’re betrayed by your schedule C
You marked that you were supposed to issue 1099s on line I of your Schedule C — but then marked that you didn’t file any on line J.
If it wasn’t obvious from context, don’t do this. It’s basically the same as sending up a flare to the IRS that you screwed up.
💸 If your write-offs rat you out
You marked that you aren’t supposed to file any 1099s, but then you claimed a sizable write-off for contract labor. This won’t necessarily get you audited, but it will increase the chances.
All in all, the likelihood of an audit is slim, but it does happen — around 0.45% of taxpayers get audited every year.
If the IRS looks at your records and determines you failed to issue some required 1099s, you’ll likely have to pay some penalties.
How much depends on how long you delay.
The penalties for not filing a required 1099
There are separate penalties for 1099 forms that the IRS deems late, versus the ones they consider "intentionally disregarded."
Penalties for late 1099 forms
The IRS assesses penalties for each form you forget to file. There's a limit they can ask you to pay, depending on the size of your business.
Here's how the penalties break down:
(According to the IRS website, a "small business" means a business that earned $5 million or less on average for the last three tax years.)
As you can see, the penalties can pile up, and procrastinating may cost you some real money.
Rule of thumb: File your 1099s as soon as you can, even if it's already past the due date.
Penalties for intentionally disregarded 1099s
What if the IRS thinks you purposefully refused to file a required 1099, instead of just accidentally forgetting about it?
In that case, you’ll be charged a whopping $570 per form in 2022.
Unlike with late fees, there are no limits to the maximum penalty for "intentional disregard."
Filing Form 1099-NEC: A quick guide
Luckily, it's easy enough to avoid penalties — filing 1099s isn’t rocket science. In fact, it’s probably one of the simplest filings to do.
For more detailed instructions — including guidance on each copy you'll have to send — check out the section of "How to file a 1099-NEC" in our guide to 1099-NECs and 1099-MISCs.
In the meantime, here's a simple checklist you can use to be a 1099 filing pro.
✅ Gather all the info you need to fill out the form
You'll should find out:
- 👩Your payee's name
- 🏠Their address
- #️⃣Their Taxpayer Identification Number (TIN): Either their Social Security number, or their business's EIN
- 💸The amount you paid them.
✅ Buy official 1099 forms
If you’re filing on paper, the official forms are available for purchase at most office retailers and online.
Why can’t you just print them off? Great question.
The IRS requires a very specific format for 1099s. If you pull a fillable form off of the internet, it won't be readable by the IRS's scanning software.
Remember those SAT scantron tests we all had to take in high school? This is the real-life equivalent. You can’t just print the red form off the internet — not even if it’s from the IRS website.
If you try to submit a form that can’t be read by the IRS scanner, the IRS may assess a penalty.
✅ Fill out a Form 1096
This form is officially called the "Annual Summary and Transmittal of U.S. Information Returns." It goes with your 1099s, essentially summing them up on a single sheet.
Again, you’ll want to get the official 1096 form from a retailer.
Can you get an extension for filing 1099s?
Here's an important question: What if the end of January is coming up, and you don't think you can file in time?
You're in luck: it's possible to file an extension.
Requesting an extension with Form 8809
You'll need to fill out Form 8809, "Application for Extension of Time To File Information Returns."
Sending this in gets you an automatic 30-day extension.
Like the 1099 itself, Form 8809 is due on January 31 for 1099-NEC filers. You can send it in electronically, or by snail mail.
That means it's really only a good option if you're having trouble gathering information from your payee. Otherwise, you'll just be filling out two types of tax document, instead of just the one.
Asking for a second extension
If 30 days isn't enough for you, you might be able to request a second extension. You'll need to send in a second Form 8809, before your first extension is over.
Unfortunately, this second extension isn't automatic. It's specifically first-year businesses and businesses affected by special circumstances, like:
- A federally recognized disaster
- A fire, natural disaster, or other casualty
- The death or illness of the person responsible for filing the 1099s
If you’re able to do so, getting your 1099s in on time is generally less hassle than asking for an extension. But even if you miss the deadline, you can stop things from snowballing by acting quickly.
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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 email firstname.lastname@example.org if you have questions.