What is 1099?
A 1099 form is an “information filing form” that reports non-salary income to the IRS. There are 20 different types of 1099s. The most common are 1099-NEC for non-employee compensation and 1099-MISC for miscellaneous income like rent, hiring an attorney, or winning a prize. Additionally, the 1099-NEC form is used for income likely subject to self-employment tax, while income reported on the 1099-MISC form typically won’t have a self-employment tax.
When you pay more than $600 in a financial year to any independent contractors, gig workers, or other self-employed individuals, you must complete a 1099-NEC form for each worker. To learn more about the form, read these 1099 reporting requirements.
1099 filing deadlines
You might be aware of the 1099 forms, but did you know you need to send a copy to both your contractors and the IRS?
To add some complexity, the deadline for each form is different. You must send Copy B of Form 1099-NEC to your payees by January 31 and then file Copy A with the IRS by March 1 if you do it in person or March 31 if you do it electronically. You may also file Copy 1 with your state tax department, though that will vary by state. If those dates are on a weekend or holiday, the filing deadline shifts to the following business day.
Filing Copy A ensures the IRS can see what you’re paying non-salaried employees. Filing Copy B gives your independent contractors ample time to file their self-employment taxes and address any discrepancies in their financial records.
If you feel nervous about filing 1099 forms, you’ll love the simplicity of our 1099 report. You’ll see the total amount you paid each contractor during the tax year, their names, and when and how you paid them. Updating contractor information or determining whether to categorize a transaction as NEC or MISC is a breeze—simply message your bookkeeper directly in the app, and they’ll help you out.
Penalties for missing 1099 deadline
Receiving a 1099 late filing penalty from the IRS might cause feelings of panic. Why am I being penalized? Why are they charging so much? Is there anything I can do?
In almost every case, the answer to that last question is a resounding “yes,” though it helps to understand how the IRS calculates penalties. This knowledge can reduce confusion and make it easier to spot any incorrect charges—the IRS can make mistakes too, after all.
First, the IRS charges penalties for failing to file a correct information return on time and imposes another penalty for failing to provide accurate payee statements. These penalties are cumulative—so, say you fail to provide five information returns on time. You’ll get five penalties, one for each return that missed the deadline.
Below are the charges for each incorrect or missed information return or payee statement.
|Year due||Up to 30 days late||31 days late through August 1||After August 1 or not filed||Intentional disregard|
The IRS will also charge interest on these penalties if you ignore them. It’s a good idea to pay as soon as you receive the IRS notice, assuming it’s warranted.
The simplest way to pay is online using your bank account, credit card, debit card, or digital wallet. You can also pay through the mail by check or money order or pay with cash through a retail partner or local IRS office.
Can’t pay the total amount of your penalty right now? Pay what you can and apply for a payment plan for the rest. The payment plan includes fees, but it’s still less expensive than the interest charges for not paying.
The payment plan options include a long-term monthly installment agreement, a choice if you owe up to $50,000 in combined tax, penalties, and interest and have properly filed all required returns. There’s also a short-term payment plan over 180 days, which is applicable if you owe less than $100,000 in total tax, penalties, and interest.
Disputing a 1099 late filing penalty
The IRS sometimes makes mistakes, and you may find that what you’re being fined for doesn’t hold any water. In those cases, you’re allowed to dispute the 1099 late filing penalty.
Your IRS notice will have a toll-free number at the top right corner that you can call. You can also write a letter saying why you believe they penalized you in error. In both situations, have the notice handy and state the penalty (or penalties) you want them to consider—for example, a late filing penalty on a 1099-NEC form—and a clear reason for removing each penalty.
Sometimes, the letter you receive from the IRS will have specific instructions for disputing any penalties. Follow those instructions; otherwise, your dispute may not be resolved.
When reviewing your IRS notice, take a look for the following:
Read the IRS explanation of the notice very carefully to see why you are receiving this (reasons include late filing, failure to pay or wrong payee information). Knowing this will be important because it will determine the documentation you need to include in your letter of dispute.
Take a close look at the address your notice was received from—mail any letters of dispute to the IRS address on the letter that explains your appeal rights.
Need additional support or didn’t get a letter? The IRS has more online resources to help you better make your case better.
1099 penalty relief
If this is your first tax filing, you might make an error. Even if you’ve filed before, there are so many other things to worry about as a small business owner. You might miss a deadline and have reasonable cause as to why that happened. The good news is, you can explain yourself; the IRS understands we’re all human—and they can reduce or remove the penalty.
To qualify for penalty relief, you must show the IRS you acted in good faith and with reasonable cause. The list of what qualifies as reasonable cause is extensive. The main criteria are that you made an honest effort before and after the failure and have significant reasons for the failure being outside your control.
For example, if your system crashed for a week and you couldn’t deliver electronic filings on time, that would be a reasonable cause. Similarly, a death or severe illness within your immediate family that delayed your ability to file would also qualify.
However, not knowing the filing rules or deadlines or forgetting to submit a particular form typically do not qualify as reasonable cause. For a specific accuracy-related penalty, you may still be able to get some relief by showing you made an honest attempt to provide the correct information.
As with filing a dispute, your IRS notice should have instructions to request penalty relief. You can often call a toll-free number to make the request. Have your notice nearby so you can reference it, and let the IRS know which penalty (or penalties) you’re seeking relief for, plus the reasons why the IRS should remove those penalties.
Don’t lose hope if the IRS can’t approve your relief over the phone. You can follow up and request relief in writing with Form 843.
Getting a notice from the IRS about a penalty can be alarming and bring about extra anxiety during an already stressful time.
Reduce your stress levels and to-do list during tax season by partnering with someone who can help. Bench takes bookkeeping off your hands so you can focus on your business. From our small business tax checklist to how to properly pay yourself as a business owner, we’re here to support you throughout the year. We’ll also keep you posted on deadlines, so you can breathe easy and file with plenty of time to spare.
If you’re already using Bench for your bookkeeping, your plan includes 1099 reporting. Log in and message your bookkeeper to get started.
If you’re new to Bench, we’d love to show you how easy we make filing your 1099 forms with a free trial. We’ll complete a prior month of books and prepare your income statement in just one business day. Start your free trial today.