Insights: Article

Things to Watch for: Information Return Penalties

By   Angie Ziegler

December 27, 2017

Information returns (we’re talking 1099, W2, etc.) are an important piece of your year-end planning. Aside from remembering all the important deadlines for these returns, there’s also the issue of what happens when they are not filed correctly. Welcome to the world of information return penalties.

Effective with returns due after January 31, 2016, the IRS has increased penalties for not filing correct information returns or furnishing the correct payee statements.

Let’s break this down.

There are two separate penalties your business can face.

Penalties for not filing correct information returns may apply to you if:

  • You didn’t file by the necessary due date and you don’t show reasonable cause for why your return was late.
  • You were supposed to file electronically but you filed on paper instead.
  • You didn’t report a Tax Identification Number (TIN) or reported an incorrect TIN.
  • You file paper forms that aren’t machine readable.

Penalties for not providing correct payee statements may apply to you if:

  • You didn’t provide correct payee statements by the necessary date and don’t show reasonable cause for why you missed the deadline.
  • You didn’t provide all the necessary information on the statement.
  • You provided incorrect information on the statement.

How do I prevent this from happening?

There are different filing requirements based on what type of form you’re filing. Starting with the 2016 tax year and going forward, the following rules apply:

W2 and W3

Employers must send Copy A of Forms W2 and W3 to the Social Security Administration by January 31. This is for both paper and electronic forms.

Employers must give Copy B and any other applicable copies to the employee by January 31.

1099-MISC

Businesses must send Copy A of Form 1099-MISC to the IRS by:

  • January 31 of the following year when you’re reporting non-employee compensation payments in Box 7
  • February 28 if filing by paper when you’re NOT reporting non-employee compensation in Box 7
  • March 31 if filing electronically when you’re NOT reporting non-employee compensation in Box 7

As far as filling out the correct information, this takes time. Make sure to walk through each box and ensure you have the correct information listed for that specific section.

Here are a few sources to help you fill out the forms correctly:

What types of penalties are we talking about?

The penalties depend on when the return was due, how late it is and the size of your business based on gross receipts.

The IRS provided this handy chart to help you see what types of penalties you may be looking at: 

 

Large Businesses with Gross Receipts of More Than $5 Million and Government Entities
(*Average annual gross receipts for the most recent 3 taxable years) IRC 6721 & IRC 6722

Time returns filed/furnished

Due 01-01-2011
thru 12-31-2015

Due 01-01-16
thru 12-31-2016
(inflation adjusted)

Due 01-01-17
thru 12-31-2017
(inflation adjusted)

Due 01-01-18
thru 12-31-2018
(inflation adjusted)

Not More Than 30 Days Late
(by March 30 if the due date is February 28)

$30 per return/
$250,000 maximum

$50 per return/
$529,500 maximum

$50 per return/
$532,000 maximum

$50 per return/
$536,000 maximum

31 Days Late – August 1

$60 per return/
$500,000 maximum

$100 per return/
$1,589,000 maximum

$100 per return/
$1,596,500 maximum

$100 per return/
$1,609,000 maximum

After August 1 or Not At All

$100 per return/
$1,500,000 maximum

$260 per return/
$3,178,500* maximum

$260 per return/
$3,193,000 maximum

$260 per return/
$3,218,500 maximum

Intentional Disregard

$250 per return/
No limitation

$520 per return/
No limitation

$530 per return/
No limitation

$530 per return/
No limitation

Note: Increased penalty amounts may apply for certain failures in the case of intentional disregard.

See IRC 6721(e)(2) and IRC 6722(e)(2).

Small Businesses with Gross Receipts $5 Million or Less
(*Average annual gross receipts for the most recent 3 taxable years) IRC 6721 & IRC 6722

Time returns filed/furnished

Due 01-01-2011
thru 12-31-2015

Due 01-01-16
thru 12-31-2016
(inflation adjusted)

Due 01-01-17
thru 12-31-2017
(inflation adjusted)

Due 01-01-18
thru 12-31-2018
(inflation adjusted)

Not More Than 30 Days Late
(by March 30 if the due date is February 28)

$30 per return/
$75,000 maximum

$50 per return/
$185,000 maximum

$50 per return/
$186,000 maximum

$50 per return/
$187,500 maximum

31 Days Late – August 1

$60 per return/
$200,000 maximum

$100 per return/
$529,500 maximum

$100 per return/
$532,000 maximum

$100 per return/
$536,000 maximum

After August 1 or Not At All

$100 per return/
$500,000 maximum

$260* per return/
$1,059,500 maximum

$260 per return/
$1,064,000 maximum

$260 per return/
$1,072,500 maximum

Intentional Disregard

$250 per return/
No limitation

$520 per return/
No limitation

$530 per return/
No limitation

$530 per return/
No limitation

The moral of the story

These forms can’t be rushed. They take time to fill out and there are penalties for not filling them out correctly and not submitting them to the proper parties by the necessary due dates.

If you need help with these forms, or have questions about what goes on them, feel free to reach out. We’re always here to help. 

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