Have you issued 1099s late because you realized that you would not likely pay a penalty? Those days are over. In the future, deadlines will have a shorter window for compliance. The good news is that you can prepare now to make sure your filing season goes well in 2017.
New Legislation passed in 2015
Last year legislation was passed regarding 1099s and other forms issued by employers. When The Trade Preference Extension Act of 2015 passed, it increased the late filing and failure-to-file penalties for several forms. Fees will be charged if forms were not filed by the due date, not having all the needed (or correct) information, and also if the intended recipient of the form did not receive it timely. Depending on the failure, the penalty increased from $100 to $250 per return. The penalty cap doubled from $1.5 million to $3 million. Businesses who purposefully do not follow the filing requirements fees will double, from $250 to $500 also. At $500 charged per form, the annual cap for general failures is $6 million. If a company intentionally has filing failures, the fee charged is $1,000 per form, with no cap on possible penalties.
If you are a small business owner with gross receipts of $5 million or less, there is a reduced maximum penalty applied. The assessment fees did double from before the act was passed, but there is a limitation on penalties. The Penalties are as follows: $1 million maximum for failure-to-file, corrections within 30 days $175,000 and if forms are received for correction before August 1st, $500,000.
Filing deadlines moved up
The new reporting deadlines for paper or electronic forms for W-2s is January 31st. This time frame also applies to W2s and W3s turned into the Internal Revenue Service (IRS) and the Social Security Administration. Previously, the deadline to turn in government copies was February 28 for paper filings and March 31st for filing electronically. The new deadline also apples to form 1099-Misc if reporting income in Box 7: Non-employee compensation. If you are not reporting information in Box 7, then the deadline does not change from prior years and remains February 28 for paper returns; electronic filing would be due on March 31st. Many 1099-Misc filers are reporting in Box 7. 1099s filed late, but within 30 days will have a $50 per form fee charged. If forms are turned in by August 1st in the year they were due, the penalty is $100 per form.
Who must file 1099s
An individual that has a business or trade is required to file 1099s if they pay for services, rent, real estate sales, $600 or more won from a prize, and non-employee compensation. If there was a payment of more than $10 for royalties, interest, and dividends, a 1099 form is also necessary.
How you can help your business
Avoiding penalties can be easy. Simply ask all new vendors and contractors for W-9 before issuing them a payment. The information provided on this form is essential in filling out a 1099-Misc form. If you have this data on file, you will not have to spend valuable time searching for this information later.
Another thing you could do is check on the IRS Website (they have a matching program for this) if their Taxpayer Identification Number(TIN) is correct. If there is a mistake, contact the contractor (or vendor) quickly to handle the issue. You can look at IRS Publication 2108-A to see how the programs guidelines work.
Some information from this blog was taken from an article written by Janet Berry-Johnson which appeared in Forbes Magazine on November 4, 2016.
