Among the many tasks Accounts Payable is responsible for, submitting 1099 forms is one of the most crucial. It can be a time-consuming process, especially considering the IRS is always changing the rules and regulations for filing.
No business wants to deal with fines or penalties related to problematic 1099 form submissions – but the IRS can and will charge you.
Here are some common reasons for 1099 penalties and fines:
- Filing incorrect 1099 forms
- Filing after the deadline
- “Intentionally disregarding” 1099 filing (in other words, not filing at all)
That’s why it’s so important to know when and how to file, in addition to validating Tax Identification Numbers (TIN) and other vendor information as part of your vendor compliance strategy.
What are the penalties for incorrect, late, or disregarded 1099 filings?
Submitting 1099s means including a valid Tax Identification Number (TIN) for each entity. You should obtain a TIN as part of your vendor onboarding process by requiring a W-9 or a tax form for the Request for Taxpayer Identification Number.
But receiving a TIN from a vendor doesn’t mean it’s accurate. This is where TIN matchingcomes in – you need to verify that the TIN of a business or individual matches the IRS database.
If a business fails to issue a form by the 1099-NEC or 1099-MISC deadline, the penalty varies from $50 to $280 per form in 2022, depending on how long past the deadline the business issues the form.
If you intentionally disregard the requirement to provide a correct payee statement, it's subject to a minimum penalty of $550 per form or 10% of the income reported on the form, with no maximum.
One wrong return equals two separate penalties - and the IRS loves to charge interest on everything.
The IRS will charge separate penalties for failing to:
- File a correct information return on time
- Provide correct payee statements
Information Return Penalties 1
They charge penalties for each information return you fail to correctly file on time and each payee statement you fail to provide.
Interest on a Penalty 1
The IRS also charges interest on penalties.
The beginning date varies by the penalty type and the amount. Interest increases the amount you owe until you pay your balance in full.
Changes for Each Information Return or Payee Statement 1 :
1 FromIRS.gov/payments/information-return-penalties
Read how this city had to pay $42K in penalties after a surprise visit from IRS agents. The largest was a $39,000 penalty dating back to 2017 due to the city not filing its employee W-2 and 1099 tax forms with the federal government by the annual deadline.
It can happen to any business. Meeting the proper deadlines is crucial.
How can you avoid penalties for non-compliance?
- Require a W-9 before issuing any payments. Make it company policy and enforce it!
- Complete a TIN Match/Verification.
- Do not create a new vendor without obtaining a successful TIN Match.
- Ensure the tax classification on your vendor is correct.
- Is an information return required? If so, which one? Form 1099-MISC or Form 1099-NEC?
- Understand what is reportable on a Form-1099.
- Know the due dates and how your organization must file!
- Monitor IRS.gov for updates to the new regulations for e-filing.
- Have tools and processes in place to make this process easy for the AP team.
Automate Vendor Validation
Mekorma Vendor Validation tools automatically verify TIN numbers and check the Office of Foreign Assets Control (OFAC) sanctions list so you don’t have to.
The results are accessible right in your Acumatica Cloud ERP so your team can take necessary action and avoid penalty fines.
We can make 1099 season that much easier. This means a happier AP Team and ensures tax submissions are processed smoothly.
