Recently, the IRS has been increasing its scrutiny of 1099 reporting in an attempt to make sure individuals are reporting all of the resulting income on their personal returns. They’ve backed up these efforts by levying substantial penalties for failure to comply, with certain penalties more than doubling as a result of the Small Business Jobs Act of 2010.
For those involved in the 1099 process, here are the 2 types of penalties to watch for:
- Failure to properly file your 1099 with the IRS
- Failure to provide a 1099 to every individual contractor receiving payments
1099 penalties accrue with time, continuing to increase with each passing time period during which the failures remained uncorrected. Penalties may only start at $30 per form, but the current maximum combined 1099 penalty for a company can exceed a million dollars ($1.5 million to be exact). In addition, if the IRS determines the failures were intentional, the penalties can start at $250 per form with no maximum penalty.
Companies should be aware that the two penalties listed above are not mutually exclusive. This means that any company who fails to file a 1099 with the IRS and the payment recipient could effectively be penalized twice per each form.
To assist companies and individuals who in the past may have “forgotten” to file properly file their 1099s, the IRS has added additional questions to both individual and business tax forms asking if any payments were made that would require a 1099, then asking for verification that all of the required forms were filed.
Considering the penalties and the increased scrutiny, it’s critical that companies and contractors understand when a 1099 is required. Though the answer varies, all entities engaged in business that made payments for services including non-employee compensation, rent, real estate sales and prizes of $600 or more are required to file a 1099. In addition, interest, dividend or royalty payments of $10 or more may also require a 1099. Note that there are exceptions in certain circumstances, but the compliance date for providing forms is generally January 31st of the following calendar year, so be sure to assess and understand your situation prior to that deadline.
If you are unsure of whether or not you must provide and/or file a 1099, please contact Lescault and Walderman for a free consultation. We are well-versed in all standard and exceptional cases related to the filing requirements of 1099s, and have the experience and expertise to provide the guidance you need to remain compliant and avoid costly IRS penalties.
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