Being forewarned is forearmed. 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.
Forms 1099-MISC and 1099-NEC are two types of information returns used by businesses and others to report taxable payments. These statements must be given to the payee and also to the IRS to report total transactions for the year.
What are Form 1099-MISC and 1099-NEC?
Form 1099-MISC-Miscellaneous Income is used to report various types of payments, including rents, royalties, commissions, medical and health care payments, payments for prizes and awards, and for legal services.
Form 1099-NEC is used to report payments to individuals who are not employees but who perform services for your business. In most cases, you must give someone a 1099-MISC if you paid more than $600 to that person during the year. There are some exceptions, including using Form 1099-MISC to report any amount of backup withholding you paid to someone under court order.
Major Errors in Forms 1099-MISC and 1099-NEC
Using the Wrong Form
With two forms to choose from for payments to non-employees and other individuals, it's easy to be confused. For example, you must use Form 1099-NEC for payments for attorney fees, but Form 1099-MISC for gross proceeds to attorneys from lawsuits.
The Instructions for Forms 1099-MISC and 1099-NEC have more details or check with your tax professional before you fill out the form.
Incorrect or Missing Taxpayer ID
The IRS links all tax forms to taxpayer ID, and it penalizes filers of information returns for not including a correct 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.
Using a 1099-NEC Instead of a W-2
If you aren't sure whether someone who works for you should get a W-2 or a 1099-NEC, see this brochure from the IRS "Independent Contractor or Employee?"
Other Common Errors
Some of these errors can mean penalties by the IRS.
Using a 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 2020, use the 2020 form, even though you may be completing the form in 2021. To be sure you are using the correct form for the correct year, check that the date "2020" and the name of the form are the right ones.
Using an Unapproved 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 in 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.
Failing to Include a Transmittal Form
You must include a copy of IRS Form 1096, Annual Summary and Transmittal of U.S. Information Returns for every batch of 1099-MISC or 1099-NEC forms you file on paper with the IRS. You don't need Form 1096 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.
IRS Penalties for Form 1099-MISC or 1099-NEC Errors
Some form errors are easy to fix. Other errors are not. And the RS 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
- 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 of 1099 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.