The Most Common Form 1099 Filing Mistakes (and how to correct them)

Information return filing is a critical task for businesses throughout the year, but it is particularly important during tax season. These forms have specific rules, and mistakes can lead to substantial penalties and potential financial complications for your organization.

Information returns serve as your communication tool with the government and taxpayers regarding taxable payments, with W-2 and 1099 forms being the most common types. Here’s what you need to know about these federal payroll reporting requirements, including how to file a corrected 1099 form.

What is Tax Form 1099?

To understand Form 1099, it's helpful to compare it with Form W-2:

• W-2 forms are given to employees of a company.
• 1099 forms are given to independent contractors or used to report other types of income to recipients.

If you’ve hired an independent contractor, you’ll have to prepare a 1099. The correct filing of the Form 1099 is incredibly important.

Common 1099 Filing Errors

1. Not filing a form when a form is needed

The most frequent mistake we encounter is taxpayers neglecting 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. For instance, if you’re reporting payments to independent contractors, you’ll typically need to file a 1099 form. If you’re not sure whether or not you need to file a 1099 form, you can download our 1099 e-book to learn more.

2. Not filing by the due date

Missing deadlines can lead to penalties and unnecessary stress for your business. Here are the key dates you need to keep in mind:

• January 31, 2025: Deadline for providing forms to recipients and filing Forms W-2 and 1099-NEC with the IRS
• February 28, 2025: IRS deadline for paper filing most other 1099 forms
• March 31, 2025: IRS deadline for electronic filing of most other 1099 forms

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.

3. 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 are using the correct Form 1099 variant (e.g., 1099-MISC for miscellaneous information, 1099-NEC for non-employee compensation) for each situation. Using the wrong type of form can lead to processing errors and may require filing corrected returns later.

4. Using the wrong box on the form

Accurately filling out each box on 1099 forms affects how the IRS processes the information. For example, on Form 1099-MISC:

• Box 1 (Rent) may be reported on a 1040 Schedule E
• Box 3 (Other income) may appear on a 1040 Schedule C or other 1040 form

The IRS applies different tax rates and rules based on where income is reported on the form. Proper placement ensures correct tax treatment and helps avoid potential issues with federal income tax reporting later on.

5. Inaccurate Taxpayer ID Number (TIN) reporting

Be sure you are receiving and regularly updating the Form W-9 for your vendors to confirm 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.

It is also important to use the appropriate name for the TIN received. In some cases, you will receive a Social Security number for a Schedule C business but will receive the entity's doing business as (dba) name instead of their personal name. When the IRS attempts to match the Social Security number with the dba name in the system, they will not match because they will be expecting a person’s name. This will likely trigger an IRS Notice and penalty.

6. 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 they must be set up correctly.

7. Filing a paper return when filing electronically is required

New e-filing requirements, effective January 1, 2024, affect many taxpayers. The IRS issued new regulations notably reducing the threshold for the number of returns required to be electronically filed. Effective January 1, 2024 (for tax years ending on or after December 31, 2023), the threshold was reduced from 250 to 10 and requires filings to be aggregated.

The previous requirement was 250 returns of any one type. This change may affect those who have historically paper filed a limited number of many different returns and forms.

You can e-file with the IRS using the FIRE system or the IRIS program. In both cases, you will need to apply for a transmitter control code (TCC) to e-file. This process can take up to 45 days, so apply early to e-file by the deadline.

8. Omitting Form 1096 when paper filing

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

9. Preparing forms that aren’t machine-readable

The IRS will machine read these forms. It is important to write legibly and in dark ink so the forms can be machine read correctly.

10. Formatting errors in key fields

Correctly formatting names, addresses, and other essential information impacts how accurately the IRS processes your forms. Since these documents are machine-read, even minor formatting errors can lead to misinterpretation. To ensure your forms are processed correctly:

• Follow the exact format specified by the IRS for each field
• Use capital letters for names and addresses
• Avoid special characters or punctuation unless specifically required
• Double-check the formatting of taxpayer identification numbers and payer names

How Do You Correct a Form 1099 After it Has Been Filed?

It is highly unlikely that you will go through 1099 filing season and not come across at least one required correction. Fortunately, correcting a Form 1099 is easy once you understand the process.

It is important to note that, unlike a Form W-2 correction form, Form W-2c, there is no separate 1099 correction form. It is the same form as the original 1099 with the “CORRECTED” box checked.

There are two types of 1099 errors to be corrected. Type 1 only requires one Form 1099 to be filed to correct the error. Type 2 requires two 1099 forms to be filed to make the correction.

Type 1 Errors

Type 1 errors occur when you file a form when one should not have been filed (in this case your corrected form would show zeros), or when you prepare a form with:

• An incorrect amount
• An incorrect code or checkbox
• An incorrect name or address for payee (but the correct TIN)

To correct Type 1 errors, file the correct form with the correct amount, code, checkbox, name, or address and check the “CORRECTED” box (generally located at the top of the form). If you used an account number on the original submission, be sure to use the same account number on the corrected form.

Submit the corrected 1099 form to the recipient and prepare the red Copy A to send to the IRS with the Form 1096 transmittal if paper filing. For electronic filing, you do not need to send in a Form 1096, nor should you mail in the originally filed forms with the correction to the IRS.

Type 2 Errors

Type 2 errors occur when you prepare a form with:

• Incorrect payer information, including the wrong Taxpayer ID Number (TIN)
• Incorrect recipient information, including the wrong TIN
• The wrong form type (e.g., a 1099-INT instead of a 1099-DIV)

To correct type 2 errors, you will need to file two corrected 1099 forms:

The first 1099 will contain the exact same payer and recipient information as the originally filed form, but the amounts on the form will be all zeros and the “CORRECTED” box will be checked. This will remove the originally filed form from the IRS records.

Then, you will need to file a new Form 1099 with the appropriate information as an originally filed form (not a corrected form). Send the corrected and new original forms to the recipient and prepare the red Copy A to send to the IRS with the Form 1096 transmittal, if paper filing. A different Form 1096 is required for each type of Form 1099 filed. For electronic filing, you do not need to send in a Form 1096.

Additional Considerations for 1099 Corrections

The corrected form should be filed in the same way the original was filed. If the original was e-filed, the correction should be e-filed. If the recipient of the original form has different information in their records, they will likely contact you for an explanation and/or correction of the Form 1099.

Occasionally, this difference in records is due to a check being written from your bank account and not yet deposited in the recipient account. It is important to investigate differences noted by the recipients. The information reports on those forms will need to match what is reported on their tax return, and you don’t want to be the cause of incorrect information.

An IRS notice is the other main reason to amend a form. This generally relates to a TIN that doesn’t match what the IRS has for the recipient's name.

Just remember — when correcting forms, be sure to verify the type of error, so you know if you need to prepare one 1099 or two to complete the correction.

Form 1099: Frequently Asked Questions

Will I get audited for not filing a 1099?

If a contractor has received more than $600 in payments in the course of the year and receives a 1099, they must report that income on their 1040 tax form. Some contractors may be exempt from paying taxes depending on their specific circumstances.

If you qualify for an exemption, you must follow IRS instructions to request one. Failing to file the required 1099s can lead to penalties and increase the risk of an audit. Always consult with a tax professional to ensure compliance with current IRS regulations.

Do credit card payments to 1099 vendors need to be tracked for 1099 filing?

The short answer is no, even if you paid the vendor more than $600. In the case of electronic payments (credit card payments), the payment processor will handle any required reporting of payments. Those payment processors are required, under certain circumstances, to send out a different version of the 1099, called a 1009-K.

How do I know whether my vendor needs a Form 1099-NEC or 1099-MISC?

You would usually prepare a Form 1099-NEC when someone provides services for you. If you pay someone for rent or other income items such as prizes or awards, a 1099-MISC is usually required. You can find more details on the IRS website.