As if we didn’t have enough to worry about in small business, Congress has increased the penalties for businesses who don’t comply with the 1099 filing rules with the Trade Preferences Extension Act (PL 114-27). In the past, failing to issue a 1099 form to your independent contractors could cost you $50 per form. Now, the penalty could be as high as $1,000 for each missing form. Ouch!
The penalty for a single incorrect 1099 form has increased by 150%, from $100 to $250. That’s a per form penalty! The penalty for intentionally failing to file a form is even higher, increasing from $250 to $500. The tricky part is that these penalties apply to both the copy of the form that you should send to your independent contractor and the copy of the form filed with the IRS. So, by failing to report payments to one independent contractor, you are actually failing to file two forms and your penalty will be $1,000!
Another change with the 2016 filing year is the due date. While you always had to get your 1099s out to your independent contractors by January 31st, you now have to get the IRS their copy by January 31st, as well. If you don’t, more penalties could kick in. Late filing penalties range from $50 to $100 per form, depending on just how late you are.
To be in compliance, you will have to prepare a 1099 form for every unincorporated service provider to whom you paid $600 or more in a calendar year. This includes freelancers of all kinds, subcontractors, independent consultants and a whole host of service professionals such as attorneys, accountants and bookkeepers, computer consultants, janitorial services and even the lawncare guy! These forms need to be sent to the recipient and a copy filed with the IRS by January 31st of each year.
Wondering how the whole 1099 process works and if you should be doing things differently? Download my 1099 Success Cheat Sheet to be sure you’re ready for year-end! Sign up in the blue box at the bottom of the post or on the right-hand sidebar.
Do you have any questions I haven’t’ covered? Leave a comment below to let me know what you think!
Deb Howard Greenleaf, EA, CEO and Principal, of Greenleaf Accounting Services provides virtual accounting and bookkeeping services and specializes in financial management to consultants, coaches, solo professionals, and other small business owners across the US. Deb is an Enrolled Agent (EA)—an IRS-licensed tax professional—and specializes in small businesses and entrepreneurs filing Schedule C or as an LLC. As an Advanced Certified QuickBooks ProAdvisor, Deb spends her day in QuickBooks Online and specializes in providing QBO support.