What are the 1099 filing penalties?

Updated July 7, 2020

IRS imposes substantial penalties for 1099, including penalties for late filing, failure to file, failure to file correct 1099, failure to file 1099 electronically, and failure to provide recipient copies.

When it comes to filing 1099 forms, you need to make sure that you do not miss out on filing your 1099s, file accurately, and timely. The IRS continues to enforce 1099 compliance; the risk of not filing these 1099 forms is not worth the risk. If you are required to file 1099 forms, then you must be aware of the following penalties. These penalties apply to both paper filers as well as electronic filers.

1099 Late Filing Penalty

If you fail to file your 1099 by the due date, you may be subject to a late filing penalty. The penalty applies if you fail to file timely, or did not include all the required information, or provided incorrect information. This penalty is also applicable if you were supposed to file electronically, but you filed on paper or reported incorrect TIN. The 1099 penalty increases with time. Here is how much the penalty is:

  • $50 per 1099 if you correctly file within 30 days of the due date. The maximum penalty per year is $565,000 ($197,500 for small businesses).
  • $110 per 1099 if you correctly file more than 30 days after the due date but by August 1. The maximum penalty per year is $1,696,000 ($565,000 for small businesses).
  • $280 per 1099 if you file after August 1, or you do not file the required 1099. The maximum penalty per year is $3,392,000 ($1,130,500 for small businesses).
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    Note: The IRS considers you a small business if you made $5 million or less in average annual revenue for the previous three years.

    Exceptions to the penalty

    Following are the exceptions to the 1099 penalty:

  • The penalty can be waived if you could not file 1099 forms due to an event out of your control and not because of the willful neglect. It is still your responsivity to show that you took all the steps to avoid failure.
  • In case you made an error or omission, but the IRS can still take that information and process 1099. If, however, the errors are in the TIN or payee’s name, it prevents the IRS from correctly processing the 1099s and cannot be used as an exception.
  • De minimis rule for corrections. Even if you cannot show reasonable cause, the penalty can we waived if: you filed the 1099 forms with incomplete or wrong information and/or filed corrections before August 1. This waiver is only available for the first ten forms or ½ to 1% of the total number of 1099 forms you are required to file. This could still result in a hefty penalty as you are still responsible for the penalty for the remaining 90% of the forms.
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    Intentional disregard of filing requirements: If any failure to file a correct information return is due to intentional disregard of the filing or correct information requirements, the penalty is at least $550 per information return with no maximum penalty.

    Failure to Furnish Correct Payee Statements

    You are required to provide payees statements (or recipient copies) by the due date. Different forms have different due dates. The due date for the payee statement for Form 1099-MISC by January 31 (February 15 for Forms 1099-B, 1099-S, and 1099-MISC (boxes 8 and 14 only), If you fail to provide correct statements to your payees by the due date, you may be subject to a penalty. The penalty applies if you fail to provide the statement or fail to include all required information, or you include incorrect information on the statement.

    The amount of the penalty is based on when you furnish the correct payee statement. It is a separate penalty and is applied in the same manner as the penalty for failure to file correct information returns by the due date.

    Exception: If the error or omission on the payee statement does not hinder the payee from using the 1099 information to file his or her tax returns, then the error is considered inconsequential, and the penalty can be waived. Errors and omissions that are considered unforgiving are wrong amounts, significant missing payee’s address, unacceptable substitute form.

    Intentional disregard of payee statement requirements: If any failure to provide a correct payee statement is due to intentional disregard of the requirements to furnish a correct payee statement, the penalty is at least $560 per payee statement with no maximum penalty.

    E-Delivery of 1099 forms:

    The IRS permits you to electronically deliver the payee statement instead of mailing a paper statement. However, there are some strict guidelines for providing payee statements electronically, also know as e-delivery or web presentment. Make sure to check our e-Delivery service.

    Failure to File 1099 Electronically

    If you are required to file electronically but fail to do so, and do not have an approved waiver or establish a reasonable cause, you may be subject to a penalty of up to $280 per return for failure to file electronically. However, you can file up to 99 returns on paper; those returns will not be subject to a penalty for failure to file electronically.

    The penalty applies separately to original returns and corrected returns.

    Civil Damages for Fraudulent Filing of 1099 Forms

    If you willfully file a fraudulent 1099 for payments you claim you made to another person, that person may be able to sue you for damages. You may have to pay $5,000 or more.

    The article is for information purposes only and should not be considered as legal or financial advice. Please contact your tax preparer if you need to take action on any of these issues or any questions. For further information, please see General Instructions for Certain Information Returns.