• FREE RESOURCES
        • Accounts Payable
          Finally! The trick to securing greater T&E compliance
          Benefits
          Rooting out folks who don’t belong on your health plan: A 6-point dependent audit checklist
          IT
          3 costly misconceptions about biz email compromise
          Credit and Collections
          Collecting via email: 4 must-make moves in your subject line
          Accounts Payable
          5 Tough-to-spot signs that an invoice is fake
  • PREMIUM CONTENT
        • Staff management
          120 Proven Communications Tips for Today’s CFO
        • Payroll
          Handling Nonexempt Employee Pay: Stay Compliant and Avoid DOL Audits
          Accounts Payable
          T&E Best Practices: Complete Guide to Ensure Compliance
          Payroll
          Payroll Best Practices: 4 Ways to Save Time and Money
        • Staff management
          Email Best Practices: A 6-Question Quiz
          Staff management
          Innovative Communications Strategies: An Email Case Study
          Staff management
          A 5-part Framework for Successful Workplace Communications
        • SEE MORE
          PREMIUM RESOURCES
  • CORONAVIRUS RESOURCES
  • LOG IN
  • SIGN UP FOR FREE

Resourceful Finance Pro

  • FREE RESOURCES
        • Accounts Payable
          Finally! The trick to securing greater T&E compliance
          Benefits
          Rooting out folks who don’t belong on your health plan: A 6-point dependent audit checklist
          IT
          3 costly misconceptions about biz email compromise
          Credit and Collections
          Collecting via email: 4 must-make moves in your subject line
          Accounts Payable
          5 Tough-to-spot signs that an invoice is fake
  • PREMIUM CONTENT
        • Staff management
          120 Proven Communications Tips for Today’s CFO
        • Payroll
          Handling Nonexempt Employee Pay: Stay Compliant and Avoid DOL Audits
          Accounts Payable
          T&E Best Practices: Complete Guide to Ensure Compliance
          Payroll
          Payroll Best Practices: 4 Ways to Save Time and Money
        • Staff management
          Email Best Practices: A 6-Question Quiz
          Staff management
          Innovative Communications Strategies: An Email Case Study
          Staff management
          A 5-part Framework for Successful Workplace Communications
        • SEE MORE
          PREMIUM RESOURCES
  • CORONAVIRUS RESOURCES
  • Accounts Payable
  • Credit and Collections
  • Payroll
  • Accounting
  • Benefits
  • Finance Technology
  • Sales & Use Tax
  • More
    • Employment Law
    • Strategy
    • Policy and Culture
    • Fraud
    • Budgeting and Forecasting
    • Banking
    • Staff Management
    • Cost Control
  • Accounts Payable
3 minute read

How to expertly handle 1099 penalties and corrections

Guidance For Your Finance Team Straight From IRS
Alyssa Pedrick
by Alyssa Pedrick
March 4, 2021
  • SHARE ON

As careful as your finance team is when filing 1099s, even tiny errors can lead to costly penalties from IRS and time-consuming corrections.

Of course, 1099 penalties and corrections are something you never want to deal with in the first place. But if your company does receive an assessment, you know Finance should deal with things as quickly as possible.

Here’s help you can pass along to your team.

Why were we penalized?

If you get word from IRS that your company was assessed for information return penalties, staffers’ first emotion may be confusion. They thought they did everything right. What went wrong?

Fact is, there are a number of reasons companies get assessed. Remind staffers that you can owe penalties if:

  • Your company didn’t file all forms on time.
  • You had inaccurate details on an information return.
  • Staffers didn’t include all the details that are required to be shown on a specific 1099.
  • A form didn’t have a TIN.
  • A form had an incorrect TIN.
  • You filed via paper when you should’ve filed electronically (e.g., if your company surpassed the 250+ threshold).
  • A paper information return you filed wasn’t machine-readable (and applicable revenue procedures provide for a machine-readable paper form).

What do we owe?

According to IRS’s 2021 General Instructions for Certain Information Returns, the penalties are:

  • $50 per information return if you correctly file within 30 days (by March 30 if the due date is Feb. 28)
  • $110 per information return if you correctly file more than 30 days after the due date, but by Aug. 1, and
  • $280 per information return if you file after Aug. 1 or you don’t file at all.

As you know, the dollar amounts only get bigger the longer you wait to correct errors. So, you’ll want to have your team jump on 1099 penalties and corrections ASAP.

Horror of Month-End Close

How do we fix errors?

Finance staffers should know that there are two types of information return errors.

Error Type 1 mistakes are the more straightforward of the two, as they only require one information return to make the correction. Typical Type 1 errors include an incorrect amount of money, code or checkbox, or filing a return when one shouldn’t have been.

To correct one of these errors, staffers should:

  1. Prep a new information return.
  2. At the top of the form, put an “X” in the “CORRECTED” box.
  3. Correct the recipient info (i.e., money amounts) and add other info like you did on the original form.

Error Type 2 are the more complex of the two, as you need two returns to make the correction. They involve payee issues, like no TIN, incorrect TIN or incorrect payee name, or using the wrong type of information return.

To fix one of these mistakes, have your team:

  1. Prep a new information return.
  2. At the top of the form, put an “X” in the “CORRECTED” box.
  3. Add the payer, recipient and account number details exactly as they appeared on your original incorrect form – except put a “0” for all money amounts.
  4. Prep another new return.
  5. On that form, don’t put an “X” in the “CORRECTED” box. You should complete the new return as if it’s an original.
  6. Add all the correct details, including the correct TIN and name.
Alyssa Pedrick
Alyssa Pedrick
Alyssa, a member of the Resourceful Finance Pro staff, has written extensively on business and finance for several years. She has produced content for accounts payable professionals and finance executives and has developed whitepapers and infographics for the finance and accounting industry.

Get the

Resourceful Finance Pro Logo

Newsletter

With Resourceful Finance Pro arriving in your inbox, you will never miss critical stories on accounting, benefits, payroll & employment law strategies.

  • This field is for validation purposes and should be left unchanged.
Resourceful Finance Pro Logo
  • ABOUT
  • CONTACT
  • WRITE FOR US
  • ADVERTISE WITH US
  • Accounting
  • Benefits
  • Payroll
  • Policy and Culture
  • Employment Law
  • Fraud
  • Finance Technology
  • Sales & Use Tax
  • Accounts Payable
  • Credit and Collections
  • Strategy
  • Budgeting and Forecasting
  • Banking
  • Staff Management
  • Cost Control

Resourceful Finance Pro, part of the SuccessFuel Network, provides the latest Finance and employment law news for Finance professionals in the trenches of small-to-medium-sized businesses. Rather than simply regurgitating the day's headlines, Resourceful Finance Pro delivers actionable insights, helping Finance execs understand what Finance trends mean to their business.

Privacy Policy | Terms of Service
Copyright © 2022 SuccessFuel

WELCOME BACK!

Enter your username and password below to log in

Forget Your Username or Password?

Reset Password

Lost your password? Please enter your username or email address. You will receive a link to create a new password via email.

Log In

During your free trial, you can cancel at any time with a single click on your “Account” page.  It’s that easy.

preloader