Top 10 1099 Filing Mistakes You Need to Care About

December 9, 2019 | Article

By Jillian Robison

Year-end is quickly approaching. An essential component of your year-end planning is information return filing. These forms come with a special set of rules. When not filled out properly, your business can be subject to penalties or other potential financial and reporting issues.

What Is an Information Return?
An information return is a form used to notify the government and taxpayers about taxable payments. The most common types of information returns at year-end are Forms 1099-MISC and W-2

At its most basic, the difference between W2 and 1099 forms is this:

  • W2 forms are given to employee of a company
  • The 1099 form is given to contractors working for a company

Learn more about the difference between W2 and 1099.

Common Mistakes on 1099 forms
If your company falls into the category of independent contractor hiring, Form 1099 is incredibly important. Here are 10 common mistakes we see in filing form 1099.

  1. Not filing a form when a form is needed.
    The biggest mistake we see is that taxpayers neglect to file an information return when one is required. There are several situations that require a Form 1099 or other information return to be filed.

  2. Learn More about Form 1099 and its requirements.

  3. Not filing by the due date.
    In general, all information returns are due to the recipient by January 31, 2020. In the last couple years, the IRS has changed the due date of Forms W-2 and 1099 with information in Box 7. These forms are due to the IRS by January 31, 2020, as well, regardless if you electronically or paper file.

    For the most part, the rest of the 1099 forms are due to the IRS by February 28, 2020, if paper filing or March 31, 2020, if electronically filing.

  4. The best way to avoid issues with 1099 filing is to start preparing early. Review your vendor information before year-end to be sure you have all the Form W-9s and other information required to file these forms.

  5. Completing the wrong form.
    If paper filing, be sure to use the correct year of the form. Make sure to prepare the red Copy A to be filed with the IRS. Also, ensure you start with the correct Form 1099, ex. 1099-MISC or 1099-INT, etc.

  6. Using the wrong box on the form.
    When preparing your forms, even if you have the correct form, be sure to use the proper box on the form. On the Form 1099-MISC, there are several boxes the IRS taxes in different ways:
    • Rent (box 1) will be shown on a 1040 Schedule E
    • Nonemployee Compensation (box 7) will be shown on a 1040 Schedule C
    • The IRS will expect the taxpayer to pay self-employment tax on the nonemployee compensation income and not on the rental income.

  7. Not reporting a Taxpayer ID Number (TIN) or reporting an incorrect TIN.
    Be sure you are receiving and regularly updating the Form W-9 for your vendors so you can be sure you have appropriate information to file information returns at year-end. You can also go to the IRS website and run the information through a TIN verification to see if what you received from your vendor matches the IRS records.

  8. Using incorrect information to complete the form.
    Double check your records to be sure you are using the appropriate amounts for the correct year and the correct vendor. Make sure you are using the vendor’s correct name and address for the form. Several accounting systems will track 1099 information for you, but you must set it up correctly.

  9. Filing a paper return when electronic filing is required.
    The IRS requires a payer to e-file the information return forms when the number of forms for that type of form for the year is more than 250. This is a per-form count, so if you have five 1099-INT forms and 300 1099-MISC forms, you are only required to e-file the 1099-MISC forms. You can register to e-file forms at https://fire.irs.gov/.

  10. Not sending in a Form 1096 transmittal, when paper filing.
    A Form 1096, a transmittal form, is required when paper filing. One Form 1096 is required per type of 1099 filed. This helps the IRS to know if they have received and read all forms attached. This form is not required when you electronically file.

  11. Not preparing machine readable forms.
    The IRS will machine read these forms. It is important to write legibly and in dark ink so the forms can be machine read.

  12. Improper formatting of name, address, etc.
    Completing a name or address in the wrong format will cause the form to be misread, as it is read by machines. Be sure to fill out the form in the proper format so it can be processed correctly.
  13. The best way to avoid issues with 1099 filing is to start preparing early. Review your vendor information before year-end to be sure you have all the Form W-9s and other information required to file these forms.

    Year-End Planning

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