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1099 Penalties and Fines

Last Updated:
December 29, 2017

The IRS really wants you to make sure all of the information on 1099s are accurate and that you file on time. In addition to penalties for errors on forms, the IRS fines for late forms, missing forms, wrong or missing taxpayer information, and not filing electronically when you should have. Here are the penalties to be aware of:

Late Forms or Uncorrected Errors

The IRS imposes penalties for failure to file information returns with the IRS on a timely basis (as well as the failure to furnish returns to payees on a timely basis). In addition, the IRS may also assess penalties if a filer fails to include all of the information required to be shown on a return (e.g., taxpayer's TIN) or reports incorrect information (e.g., incorrect dollar amount). Please note, the penalties have increased for Tax Year 2017.

  • If you correctly file within 30 days of deadline: $50 per form ($532,000 max)
  • If you correctly after 30 days and by August 1, 2017: $100 per form ($1,596,000 max)
  • If you correctly file after August 1, 2017: $260 per form ($3,193,000 max)

The IRS reduces max fines for each tier by $186,000, $532,000 and $1,064,000, respectively for filers that are small businesses with less than $5 million in gross receipts for the past three years.

Missing Forms Due to Intentional Disregard

The penalty has been increased to the greater of $530 per form or 10% of the amount required to be reported on the return if a filer neglects to send forms altogether (to either the IRS or the contractor) when the filer knew it should have (what the IRS classifies as “Intentional Disregard”). This penalty has no maximum -- yikes!

Not Filing Over 250 Forms Electronically

Businesses that are required to file over 250 1099s of the same type (250 1099-MISC forms, for example), must file electronically or face fines of $250 per form.

Exceptions to the Penalty

Concerned about facing a penalty? Don’t give up hope: you may fall into an exception if you faced mitigating circumstances and act fast to solve the issue. Here’s the IRS list of acceptable exceptions:

1. The penalty will not apply to any failure that you can show was due to reasonable cause and not to willful neglect. In general, you must be able to show that your failure was due to an event beyond your control or due to significant mitigating factors. You must also be able to show that you acted in a responsible manner and took steps to avoid the failure.

2. An inconsequential error or omission is not considered a failure to include correct information. An inconsequential error or omission does not prevent or hinder the IRS from processing the return, from correlating the information required to be shown on the return with the information shown on the payee's tax return, or from otherwise putting the return to its intended use. Errors and omissions that are never inconsequential are those related to (a) a TIN, (b) a payee's surname, and (c) any money amount.

3. De minimis rule for corrections. Even though you cannot show reasonable cause, the penalty for failure to file correct information returns will not apply to a certain number of returns if you:

a. Filed those information returns timely,

b. Either failed to include all the information required on a return or included incorrect information, and

c. Filed corrections by August 1.

If you meet all the conditions in (a), (b), and (c) above, the penalty for filing incorrect returns will not apply to the greater of 10 information returns or 1/2 of 1% of the total number of information returns you are required to file for the calendar year.

Missing or Incorrect TINs

If required 1099-K or 1099-MISC forms are missing TINs (SSN or EIN) or have incorrect TINs, then the IRS can impose fines $260 per form. That fine can be reduced to $50 if a correction is filed within 30 days of the deadline,.

The penalty may be waived by showing the failure(s) was due to reasonable cause and not to willful neglect.

What constitutes reasonable cause?

According to IRS guidance:

Filers must establish that they acted in a responsible manner both before and after the failure occurred, and that:

  • There were significant mitigating factors (for example, an established history of filing information returns with correct TINs)
  • The failure was due to events beyond the filer’s control (for example, a payee did not provide a correct name/TIN in response to a request for the corrected information). Acting in a responsible manner includes making an initial solicitation (request) for the payee’s name and TIN and, if required, an annual solicitation. Upon receipt of this information, it must be used on any future information returns filed.

You may want to talk to your tax advisor to understand the applicable penalties.

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