Form 1099-NEC Penalties
All employers are required to file form 1099-NEC if they have made a nonemployee compensation of $600 or more to a nonemployee. You could be penalised if you:
- Fail to report a TIN number or file an incorrect TIN number
- Fail to issue 1099-NEC statements to payees on time
- Filed by mail when you were required to e-file
What are the penalty rates for not filing form 1099-NEC?
The form 1099-NEC penalty amount will be determined based on when you file the return:
- If you file within 30 days after the filing due date, you will be charged a penalty of $50
- If you file more than 30 days after the filing due date (but before August 1st), you will be charged a penalty of $100
- If you file on or after August 1, you will be charged a penalty of $260
What is the penalty for failing to report a TIN number?
If the 1099-NEC form you submitted has a missing TIN (SSN or EIN) or has incorrect TIN, the IRS can impose a fine of up to $270 per form depending on when the corrected return is filed. That fine can be reduced to $50 if a correction is filed within 30 days of the deadline.
Apart from wrong TIN numbers and payee names, errors and omissions that are considered unforgiving are wrong amounts, significant missing payee’s address, unacceptable substitute form.
Penalties for not issuing Form 1099-NEC
If you offer compensation to a non-employee such as a freelancer or contractor, you must provide them a Form 1099-NEC by the end of February of the year following the tax year in which the income was paid. However, if the payment is to be declared on box 7 of Form 1099-NEC, then it is required to be filed by January 31st.
For example, if you paid compensation to a freelancer in 2020, you need to issue Form 1099-NEC by January 31st of 2021. If you fail to do so, you will be penalised depending on how long it takes for you to issue the form after the deadline. If you intentionally fail to provide a statement to the payee, you will be subject to a minimum penalty of $250 per statement, with no maximum.
Not filing over 250 forms electronically
If you are filing more than 250 form 1099-NECs, then it should be done electronically. If you fail to e-file the forms, the IRS will impose a fine of $250 per form.
Exceptions to the penalty
You will not be imposed a penalty if:
- You couldn't file due to events beyond your control such as a natural disaster. You will need to provide a satisfactory explanation to the IRS for failing to file, and must prove that you took all the steps to avoid failure.
- The filing process was affected by the death, serious illness or unavoidable absence of the individual responsible for providing filing information.
- The IRS will process your form if you can clarify minor errors with them. But if you’ve made a TIN number error or incorrect name, the IRS will not process your form.
- Even if you cannot show reasonable cause, the penalty can be waived if you filed the forms before August 1st. This waiver is only available for 1% of the total number of 1099 forms you file.
- The error or omission on the payee statement does not hinder the payee from using the 1099 information to file his or her tax returns. In such cases, the error is considered inconsequential, and the penalty can be waived.
Who must pay the late filing penalty of form 1099-NEC?
If you are an employer who has reported a nonemployee compensation in IRS form 1099-NEC, you are liable to pay for the penalties incurred due to late filing or filing errors.
How to avoid IRS penalties
Make sure you keep in mind the below points to avoid unnecessary penalties:
- Ensure that you are using the right form for filing. Do not report nonemployee compensation on Form 1099-MISC or any other kinds of forms.
- File your form before the due date so that you have enough time to correct errors and refile the form.
- Ensure that you provide form W-9 to your contractors to collect their details so you can include them in the form and file on time.
What is the 1099-NEC filing deadline?
The due date to file Copy A of Form 1099-NEC with the IRS is January 31 of the following year. If this date does not fall on a business day, the due date will be the next business day. Similarly, the deadline to provide Copy B of Form 1099-NEC to contractors is January 31 of the following year.
When it comes to timely form filing, the IRS does not joke around. Always ensure that you file all your forms ahead of the deadline to avoid substantial penalties. We understand that it takes time to get accustomed to filing the newly introduced Form 1099-NEC. It’s best to start filing early and be on-time, everytime.