After the end of each year, business owners are required to prepare 1099 forms to report payments to non-employees and others. While it’s normal to make a mistake on a 1099 form, it’s imperative to correct it for both the Internal Revenue Service and the payee.
Today, we’re going to give an overview of 1099 forms, how to go about correcting them and reporting the corrected payments.
When to Issue a 1099
Businesses issue several types of 1099 forms to report taxable payments to various businesses and individuals. The most common types of 1099 reports are:
- Form 1099-NEC for non-employees
- Form 1099-MISC for miscellaneous payments
- Form 1099-DIV for report dividends and other distributions to shareholders
- Form 1099-INT for interest payments
- Form 1099-R for distributions from retirement plans, profit-sharing plans, pension plans, and more
The IRS labels 1099 forms and similar forms as “information returns.”; where some requirements are similar across these forms while other requirements differ based on the form.
Form 1099-NEC is used to report payments to non-employees who provide services to the business. These individuals include gig workers, attorneys, independent contractors, and other professionals.
Form 1099-MISC reports several different types of payments, including royalties, rents, prizes, awards, and other income payments.
Where to Send 1099 Forms
Each 1099 form contains several copies:
- Copy A for the IRS
- Copy 1 for state tax agency (if the state requires income tax)
- Copy B for the recipient (payee)
- Copy 2 for the recipient, for their state income tax return
- Copy C for the payer (your small business)
- The due dates are different for payees and the IRS depending on the form.
What are the Deadlines for Forms 1099-MISC and 1099-NEC?
Here are some important deadlines to remember for 1099-MISC and 1099-NEC forms:
Copy A of form 1099-MISC is due to the IRS on Feb. 28, or Mar. 31 if filed electronically, and due to payees by Jan. 31.
Form 1099-NEC is due to the IRS and to payees by Jan. 31.
If you are mailing 1099 forms to the IRS, you must include a transmission form, Form 1096; you don’t need this form if you are filing electronically.1
For due dates for other types of 1099 forms, see pages 26-28 of the IRS’ General Instructions document.
Filing State 1099 Reports
While some states require you to submit a copy of 1099 forms for state income tax purposes, many do not. Check with your state’s tax agency to see if it participates in this program.
If you have the proper software, you have the ability to file most types of 1099 forms electronically using the IRS Filing Information Returns Electronically System. Moreover, you can also physically mail 1099 forms directly to the IRS or utilize one of the IRS-approved private delivery services.
Correcting Common 1099 Filing Errors
The IRS has procedures for filing corrected paper returns or returns filed electronically.
Correcting Paper Returns
Type 1 errors are for incorrect money amounts, codes, or checkboxes, or if a return was filed when it didn’t need to have been filed. To make the correction, follow these steps:
- Prepare a new return and enter an “X” in the “CORRECTED” box at the top of the form.
- Prepare a new transmittal Form 1096 and include it with your mailing to the IRS Submission Processing Center for your location.
Type 2 errors are for a missing payee name or a missing or incorrect payee taxpayer identification number (TIN). Here are the steps for Type 2 corrections:
Prepare a new information return, entering an X in the “CORRECTED” box at the top of the form.
Enter “0” for all money amounts.
Prepare a new transmittal Form 1096 and enter one of the following phrases in the bottom margin:
- Filed to Correct TIN
- Filed to Correct Name
- Filed to Correct Return
File Form 1096 and Copy A of the return with the IRS Submission Processing Center designated for your state, but don’t include a copy of the original incorrect return.
Correcting Electronically Filed Returns
If you find an error in an electronically filed 1099 form, you must file a corrected return. Don’t file the original form again, and file only the specific returns that were in error. If you omitted a return from a previous filing, file it as an original return.
To report a missing or incorrect taxpayer ID number (TIN), you must write to the IRS and include:
Name and address of payer
- Error type
- Tax year
- Payer TIN
- Transmitter Control Code (TCC)
- Return Type
- Number of payees
- Filing method (paper or electronic)
- Whether federal income tax was withheld3
Send the letter to:
Internal Revenue Service
Information Returns Branch
230 Murall Drive, Mail Stop 4360
Kearneysville WV 25430
There are specific procedures for correcting one-transaction and two-transaction errors on the FIRE system. Check with a tax professional for help with this process.
What If You Receive an Incorrect 1099?
If you received an incorrect form, immediately inform the payer to explain the error and request for them to send a new form. If you don’t receive a new 1099 before the time you’re required to file your tax return, check with a licensed tax preparer to see how to take care of incorrect forms.
While it’s common to make mistakes on a 1099 form, rectifying it does require some additional time. From identifying mistakes(s) to preparing new forms and sending them out, it’s time and money that could have been spent on other business-related tasks. Many common tax mistakes can be avoided through the counsel of a financial professional.
Our MCDA CCG qualified financial advisors equally acknowledge the value of each of our clients’ time, and structure our services accordingly.
Our services and expertise range from the most basic accounting functions to managing the most complex economic activities.
With our New Years specials ending soon, now is the time to see how we can help save you time and money this tax season. Call our office today!