Find Errors on Form 1099-MISC - and How to Correct Them
Being forewarned is forearmed. After you prepare Form 1099- MISC forms, stop and make sure they are correct. Before you send these forms to individuals and businesses your business has paid and you file these forms with the IRS, review these common errors to avoid problems.
Be sure to use the 2019 version of 1099-MISC for 2019 payments to nonemployees and others. The 1099-MISC form has changed for 2020 tax reporting, and a new 2020 Form 1099-NEC will be used to report nonemployee compensation.
To be sure you are using the correct form, check that the date "2019" is in the top right and that Item 7 is for "nonemployee compensation."
What is Form 1099-MISC?
Form 1099-MISC - Miscellaneous Income is one of several information forms used by the IRS for reporting payments. information returns are used by businesses and others who make transactions that must be reported to the IRS. These statements must be given to the recipient and also to the IRS for total transactions for the year. with various kinds of 1099 forms, like Form 1099-MISC, included in this category.
You must give Form 1099-MISC must be given to any individual who is not an employee and any business (that includes giving this form to sole proprietors, independent contractors, partnerships, and limited liability companies (LLC's))
In most cases, you must give someone a 1099-MISC if you paid more than $600 to that person during the year. The exception is that you must send a 1099-MISC if you made royalty payments of at least $10 during the year.
The Biggest Error - Failing to Give to the Right Person
Form 1099-MISC is for people who do business with, for payments you make in the course of your business, to people who are not part of your business. (Employees, board members, and owners are part of your business.)
The IRS breaks down the kinds of payments that you must report with Form 1099-MISC:
- Rents (in Box 1)
- Royalties (in Box 2)
- Services (including non-employee compensation, in Box 7)
- Prizes and awards (in Box 3)
- Other income payments (in Box 3)
- And other less common types of payments.
Most businesses use the 1099-MISC to report payments made to non-employees in Box 7. Non-employees are people you (the payor) didn't consider employees. Your business doesn't withhold income tax or Social Security/Medicare tax on these payments.
Employees don't receive Form 1099-MISC; they receive a W-2 form showing the payments you made to them as employees and any withholding or deductions.
If you aren't sure if someone is an employee, check this article about W-2s vs. 1099-MISC forms.
Even if the person is not "in business" and does not have a business identify, if you paid them $600 or more during the year, they must receive a 1099-MISC.
There are several exceptions. The two most common exceptions are:
- Corporations (but law firms that are corporations must receive a 1099-MISC) and
- Wages paid to employees.
There are many other exceptions to this requirement for filing a 1099-MISC form. Check with your tax professional if you aren't sure if you should give someone this form.
Other Common 1099-MISC Errors
Some of these errors can mean penalties by the IRS, as explained above.
Using the form for the wrong year.
Use the 1099-MISC form for the year the payments were made, not the year you are completing the form. For example, for payments made in 2019, use the 2019 1099-MISC form, even though you are completing the form in 2020.
Not using the approved form.
You cannot download the 1099-MISC form, copy and use it. The red on Copy A (the copy that is sent to the IRS) is a special ink that can't be duplicated with a color copier. You must get the approved forms, from an office supply company, the IRS, or a business tax preparation software program.
Sending a 1099-MISC form to an employee.
Employees must receive IRS Form W-2 for wages or salaries paid to them in the course of their employment. If the person is paid for outside contract work for your business, those payments may be made with a 1099-MISC form because for this work they are considered nonemployees.
Incorrect or missing taxpayer ID.
The IRS penalizes filers of information returns like Form 1099-MISC for reporting an incorrect taxpayer ID. To check on a taxpayer ID, IRS has an Interactive TIN Matching service that you can use if you have questions. You will need to register, and there are tutorials to help you with the service.
Failing to include a transmittal form (Form 1096).
You must include a copy of IRS Form 1096, Annual Summary and Transmittal of U.S. Information Returns for every batch of 1099-MISC forms you file with the IRS. The 1096 form is for use if you file paper 1099-MisC forms. You don't need it if you are filing electronically. Recipients don't need a copy of this form.
Making form errors.
- Failing to include decimal and cents on amounts
- Failing to use black ink (making entries too light)
- Making entries too large or too small. The IRS suggests you use 12 pt. Courier type font for printing 1099-MISC forms.
- Mis-formatting employee name. Employee first name and middle initial goes in the first box, the employee surname goes in the second box, and any suffix (like "Jr.") goes in the third box.
- Filing the 1099-MISC twice.
- Having a different taxpayer ID on Form 1096 and the 1099 form.
- Submitting two or more types of information returns with one Form 1096.
IRS Penalties for Form 1099-MISC Errors
Some form errors are easy to fix. Other errors are not. And the Irs penalizes filers for some errors. The penalty amounts are different, depending on:
- The size of the business (larger employers face higher penalties),
- The type of failure, and
- The lateness of the filing (higher penalties if not filed at all or for "intentional disregard")
Here are the IRS form errors that have penalties:
- Not filing by the due date
- Filing on paper when required to file electronically
- Not reporting a Taxpayer ID or reporting an incorrect Tax ID
- Not filing a paper form that's machine-readable.
You may also face penalties related to giving forms to payees:
- If you don't give a 1099-Form to someone who should get one
- If you don't include all the required information about your business as payer, or
- If the information on the form is incorrect.
How to Correct Errors on Form 1099-MISC
For paper forms. If you filed a 1099-Misc form with the IRS and you discover an error, correct the error as soon as possible. Then send the corrected form (Copy A) and Form 1096 to the IRS and furnish a correct statement to the recipient.
The IRS has an Error Chart fo Filing corrected Returns on Paper Forms (page 27) to help you correct the various types of errors.
If you are mailing corrected paper versions 1099-MISC forms to the IRS, you must also include Form 1096 summary and transmittal form. You can find the correct address for your state on the IRS General Instructions for Certain Information Forms.
For electronic filing. For errors on electronically filed 1099-MISC forms, you may make corrections using paper forms, using the process described above if you have fewer than 250 corrections.
If the error is an incorrect taxpayer name or ID number, you must send a written letter to the IRS to correct the form.
IRS. "A Guide to Information Returns." Error Charts for Filing Corrected Returns on Paper Forms. Page 27. Accessed Apr. 20, 2020.
IRS. "2019 Instructions for Form 1099-MISC." Accessed Apr. 20, 2020.
IRS. "A Guide to Information Returns." Accessed Dec. 18, 2019.
IRS. "2019 Form 1099-MISC." Accessed Apr. 20, 2020.
IRS. "2019 Instructions for Form 1099-MISC." Box 7. Nonemployee compensation. Page 7. Accessed Apr. 20, 2020.
IRS. "General Instructions for Certain Information Returns." J. Recipient Names and Taxpayer Identification Numbers (TINs). Page 12. Accessed Apr. 20, 2020.
IRS. "General Instructions for Certain Information Returns." Items You Should include. Page 2. Accessed Apr. 20, 2020.
IRS. "General Instructions for Certain Information Returns." G. Paper Document Reporting. Page 9. Accessed Apr. 20, 2020.
IRS. "General Instructions for Certain Information Returns." Accessed Apr. 20, 2020.
IRS. "Increase in Information Return Penalties." Accessed Apr. 20, 2020.
IRS. "General Instructions for Certain Information Returns." Section F. Electronic Reporting. Page 8. Accessed Apr. 20, 2020.