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. 

Latest Insights

September 25, 2018
Article
As the largest tax reform legislation in the past 30 years becomes reality, it is important to stay up-to-date on planning opportunities and how reform may impact you and your business. Our Tax Reform: Practical Insights examples aim to break down…
September 24, 2018
Article
Since the Affordable Care Act became reality, businesses have been scrambling to figure out what compliance looks like and how best to comply.
September 24, 2018
Article
In auto dealerships, showrooms, car lots and implement dealerships, there is a constant flurry of activity. One area that can easily get overlooked is cybersecurity.
September 24, 2018
Article
The recent US Supreme Court decision that overturned Quill in the South Dakota v Wayfair case has many states making or considering law changes related to sales tax compliance for out-of-state sellers.
September 21, 2018
Article
In the wake of Hurricane Florence and its footprint, devastating results are being experienced by communities and businesses. As a result of these catastrophes, businesses will turn to insurance carriers for recovery of covered losses. Current…
September 20, 2018
Firm News
Eide Bailly LLP announced the winners of its 2018 Nonprofit Resourcefullness Awards, recognizing creative and sustainable revenue ideas from nonprofits in Arizona, Colorado, Minnesota, North Dakota and Utah.
September 19, 2018
Article
The IRS has started sending out Letter 5699 asking businesses to verify if they should have filed Forms 1094/1095-C. These forms are required for all ALEs.
September 19, 2018
Recorded Webinar
Are you considering doing business or having employees in Pennsylvania? Have you had issues with your state tax filing? Join our state and local tax team for some helpful insights into Pennsylvania tax filings.
September 19, 2018
Recorded Webinar
Are you considering doing business or having employees in Nevada? Have you had issues with your state tax filing? Join our state and local tax team for some helpful insights into North Dakota tax filings. This webinar will cover registration,…