Filing and processing dozens, or even hundreds or thousands, of information returns can be daunting. Here is a quick reference guide for what to expect when it comes to information return penalties when filed on paper and/or electronically and how you can avoid those mistakes, and those bills.
Information Return Penalties
Information returns are the foundation for much of your business tax reporting, as well as the reporting of your vendors, employees, and more. They are used to verify tax return entries, identify all applicable non-filing conditions, and detect fraudulent activity.
Because your business does not exist in a vacuum, that means any missing or erroneous returns are penalized so that you can rectify your mistakes and hopefully learn from them in the future. Being able to receive and provide accurate tax-related information is imperative to the functionality and success of all businesses and the relationships they have established to further their operations.
Each of the information returns that you file on paper or submit electronically are subject to scrutiny and can be the basis for several different fines and related penalties. Below, we’ve provided a quick reference guide for these penalties.
There are separate penalties for failing to file correct information returns on time as well as failing to provide correct payee statements. The IRS has a quick and handy chart with the charges, organized by tax year. For the tax year 2021, the penalties include the following charges for each information return or payee statement:
- $50 for returns up to 30 days late
- $110 for returns 31 days late through August 1
- $280 for returns after August 1 or not filed at all
- $560 for intentional disregard
For the tax year 2022 (which will be due during the 2023 tax season), all penalty fees are the same except those falling into the intentional disregard category – which will be increased to $570 next year.
Notice CP2100 & CP2100A – Backup Withholding
Notices CP2100 and CP2100A are used to notify your business that backup withholding applies when a reportable payment is made on an account if either the payor hasn’t received the payee’s TIN at the time of payment, or if the TIN given by the payee to the payor is incorrect and the payee hasn’t yet shared the correct TIN.
The difference between the 2100 and 2100A are as follows:
- CP2100A: less than 50 returns filed
- CP2100 when filed on paper: 50-249 returns
- CP 2100 when filed electronically: 250 or more returns
To correct this error, you’ll need to submit the corrected information returns, either filed on paper or electronically based on the latest IRS guidelines. You’ll follow the same procedure as you did when you filed originally.
These notices are mailed out twice annually, in September and April.
Notice 972CG – Notice of Proposed Penalty
Notice 972CG is a “Notice of Proposed Civil Penalty” and it is sent when a business has filed late, filed using incorrect media (filed on paper versus electronically), filed with missing or incorrect TINs, or any combination of these errors.
You must answer this notice within 45 calendar days of receiving it. To extend this deadline, you must submit a written request to the address found on the original notice before the end of the 45-day period. The IRS sends out these notices by mail, typically in July.
We’ve previously covered what to do when you receive a “B” Notice. The IRS sends “B” Notices when payers (including businesses) file information returns with incorrect TIN (Taxpayer Identification Number) information.
This notice is part of the Backup Withholding program (which coincides with the CP2100), and it requires you (the business) to reach out to the independent contractors, freelancers, or other non-employee and collect the correct TIN from them. The IRS can’t do this for you because they don’t have the correct TIN and are unable to find those contractors without it.
The best way to avoid “B” Notices is to double-check that the contractor or freelancer has given you the correct TIN from the time that you onboard them, as soon as you receive their W-9 information.
Filed on Paper or Electronically? eFile360 Can Help
Though taxes are due every year (and sometimes every quarter for your business and other accounts), many entrepreneurs and business leaders dread having to even put the information together to give to their CPA or tax preparer.
eFile360 was created to ease some of the frustrations that come with filing information returns. As the tax code and its related procedures change year over year, it can be hard to keep up with which items need to be checked and double-checked. eFile360 is the most effective e-filing service for IRS 1099, 1098, ACA, and W-2 forms.
With all-inclusive pricing starting at just $3.50 per recipient, plus the capability to store and organize your information returns in a secure digital platform, eFile360 is going to be your favorite tax partner this year, and every year after that.
eFil360 also offers TIN checking services – this can save you thousands of dollars if your business frequently submits bulk amounts of information returns every tax season.
Looking to e-file your information returns easily? Sign up for a free eFile360 account today.