Deadlines and Penalties for 1099 Late Filing
Filing 1099 forms is an important part of doing business when organizations work with independent contractors, marketplace sellers, and other non-employee payment recipients. No matter your industry, timely files are paramount. Failing to fulfill your tax duties as a payee could result in serious fines and penalties.
While many businesses have well-established processes for reporting employee wages on a Form W-2, 1099 can be more complicated. It's important to stay current on state and federal laws for the most current information, and it may be worth seeking professional tax services to navigate your company's unique situation. However, this guide will provide a breakdown of 1099 deadlines and potential penalties you might face for missing them.
The Different Forms
Before we get into the deadlines, let's look at the different types of forms you might need to file with the Internal Revenue Service (IRS). There are several types of 1099 forms. In 2024, there are a total of 22. Fortunately, you'll likely only focus on two.
The 1099 forms are to report payments sent to individuals who aren't employees. They're different from your garden-variety W-2s, which are for reporting employee compensation and withheld taxes. Because businesses typically aren't required to withhold taxes from non-employees, you must file 1099s to report payments to the IRS and send a copy to recipients for tax-filing purposes. Generally, organizations will collect Form W-9 from recipients to gather relevant taxpayer information, but it's on the business to complete and file the appropriate 1099 form.
The two main types of 1099s businesses typically file are Form 1099-NEC and Form 1099-MISC. The 1099-NEC form is the most common and used for reporting non-employee compensation. It applies to companies that provide payments subject to self-employment taxes. That means any payments sent to independent contractors, marketplace sellers, freelancers, influencers, affiliates, and more apply. The reporting threshold for 1099-NEC is $600 of non-employee compensation.
The 1099-MISC form is for reporting payments not subject to self-employment taxes. These payments might include rent, prize payouts, awards, payments to attorneys, etc.
It's important to note that, in the past, businesses would use 1099-MISC forms to report non-employee compensation. However, the IRS began using the 1099-MISC forms in the 2020 tax year, reserving the 1099-MISC for reporting miscellaneous income.
Important Tax Deadlines To Be Aware Of
While 1099-NEC and 1099-MISC fall under the IRS Form 1099 umbrella. They're a type of information return that reports payments sent to non-employee individuals during the previous tax year, they serve different purposes and have unique filing deadlines.
As of 2020, the filing deadline for Form 1099-NEC is January 31st. If that specific date falls on a weekend or holiday, the deadline moves to the following business day. You must file the form to report payments of the given tax year by January 31st of the following year. That deadline applies regardless of whether you file on paper or electronically.
It also applies to all copies of the form. Copy A goes to the IRS. Meanwhile, Copy B and Copy 2 go to the person who received nonemployee compensation. The IRS doesn't automatically share nonemployee compensation information with states. Therefore, you'll have to send Form 1099-NEC Copy 1 to state tax departments where applicable.
Starting in 2020, the filing deadlines for Form 1099-MISC are March 1st or March 31st. The March 1st deadline applies if you file on paper. However, the IRS allows businesses to file electronically until March 31st.
Penalty for Missing Deadlines
So, what happens if you fail to file these forms with the required information by the deadline? The IRS imposes steep fines that could cost your business big bucks.
Late filing penalties vary based on how long past the deadline you file. However, they are generally between $60 and $310 per form in 2023! You're looking at a steep penalty if you miss the deadline for hundreds of payment recipients. The penalty structure is as follows:
• $60 per form when filed up to 30 days late
• $120 per form when filed by August 1st
• $310 per form when filed after August 1st
The maximum penalty per year, depending on when a business files the late form, can range from $220,500 to $1,260,000.
Common Errors and How to Avoid Them
Penalties can apply even if you file the forms on time. Incorrect information and omissions may make the form unusable to the IRS and the taxpayer, rendering it useless and requiring action to avoid additional penalties. Providing correct information before the deadline can prevent fees. The IRS generally doesn't penalize companies for inconsequential errors that don't prevent the payee from using the 1099 form to complete their taxes. However, bigger issues will cause problems.
There are two types of Form 1099 errors, and the IRS classifies them into two distinct categories. Type 1 errors include incorrect codes, payee names, addresses, amounts, etc. Type 2 errors include incorrect payee or payer information and filing the wrong 1099 form.
Small errors are surprisingly common, and there are ways to correct both types of mistakes before the filing deadline. However, the best approach is to avoid them altogether!
Poor accounting and filing mistakes are the most common causes of 1099 errors. The best way to avoid them is to use technology to ensure complete accuracy across the board. Human error leaves much room for mistakes, so automating all your tax processes can significantly reduce your risks.
A payout API like Dots can automate how your business collects W-9 forms and files 1099s. An API can verify tax information directly with the IRS, highlighting issues that need correction before you file. An API can also integrate with your accounting systems to ensure all amounts and figures are correct.
While many businesses still rely on manual filing, an API streamlines your tax obligations to substantially reduce the risk of errors that could result in penalties.
Tips to File on Time
In addition to using a payouts API like Dots to streamline and automate tax processes, there are many other ways to ensure you're filing on time.
One of the biggest challenges in tax filing is keeping track of payments sent to hundreds or thousands of recipients. To tackle this, practicing good bookkeeping throughout the year is crucial. Maintain your accounts, generate reports, and use APIs to reduce the risk of human-made bookkeeping errors. Premium accounting software and top-notch APIs can be a game-changer in this scenario. Choose APIs that automate payment tracking and record-keeping to ensure you can quickly address issues if they arise.
Another tip is to request updated W-9s regularly. People move, and information changes. Don't let something as simple as an incorrect address cause your business to pay penalties. Requesting updated W-9 forms every year ensures your bookkeeping is accurate come tax season.
Prioritizing bookkeeping and account recording makes a big difference. If done right, you'll have everything you need to file 1099 forms when tax season arrives. File your forms as early as possible. An API can automate that process, allowing your business to fulfill its tax obligations quickly and efficiently. By filing early, you can correct any errors that might arise before the filing deadlines come.
Consequences of Non-Compliance
Earlier, we covered some applicable late filing penalties. However, there are even bigger consequences for not complying with tax laws. Failing to file 1099 forms at all can lead to big penalties for your business.
Failing to file will incur a minimum penalty of $610 per form. That's just the minimum. The IRS can also impose a penalty of 10 percent of the income you should have reported on the form. Unlike late filing penalties, there are no maximum limits to failure-to-file penalties. Intentionally disregarding tax laws may also put your organization at risk for legal action.
Resources for Assistance
Filing 1099 forms can be overwhelming, and the deadlines paired with the potential for high penalties can make the entire process daunting for businesses of any size. Fortunately, there are many resources you can turn to if you require assistance.
• IRS resources for 1099 filers
One of the best resources available is the IRS directly. The IRS website offers in-depth information about every form available, including every 1099. The official government website provides instructions about how to file, deadlines you must follow, penalties that might apply if you file late, etc.
You can also access your business tax account directly on the IRS website. You can find even more resources there, including platforms to file your 1099 forms electronically.
If you still need assistance, dedicated help desks and telephone lines are available to small business owners.
• Seeking professional guidance
Another option is to seek help from a tax professional. Tax consultants, attorneys, and specialists are well-versed in current tax laws. They can guide small businesses in the right direction and handle many filing duties. We recommend seeking professional guidance to better understand your unique tax situation.
Simplify Your 1099 Taxes With Dots
Don't let 1099s cost your business. Turn to the Dots payout API to simplify how you manage tax obligations and file 1099 forms. Our API does the heavy lifting, collecting W-9s and filing 1099s directly to the IRS. Dots can also send 1099s to your contractors. The Dots API streamlines tax season, helping you stay compliant without the headaches. Check out Dots today to see how a payouts API can benefit your business.