Forgot to File 1099? Here’s what Happens & What you Should do
There are two parties in an IRS Form 1099 (three if you count the IRS): the payer, and the payee.
The payer, as the name suggests, is an individual or a business entity that makes the payment.
It could be for goods, services, or other types of income payments such as interest, dividends, debt cancellations, etc.
On the other side of the coin, the payee is an individual or a business entity that receives such payments.
An IRS Form 1099 is a document that contains information about certain types of income an individual or a business entity received during the year.
Note that salaries and wages received as an employee are not reported in an IRS form 1099, and are instead reported by the employer on a Form W-2.
There are different types of Form 1099 that correspond to the type of income payment to be reported.
For example, Form 1099-NEC is where you report payments made to non-employees or independent contractors.
This two-way verification system helps the IRS in making sure that taxpayers don’t under-report their income in their tax returns.
The IRS can check their system to compare 1099 forms filed by payers to the reported income by payees (such as Schedule C for individuals).
If it so happened that you reported less income in your returns than the total of 1099 forms that can be traced to you, expect to pay penalties.
I’m a payee. What happens if I forgot to include a 1099 form in my tax return?
If you’ve received an IRS Form 1099, that means that the payer most certainly filed a copy of it with the IRS.
That means that any IRS Form 1099 you received must be reported in your tax return.
There’s no other way around it, lest you’ll be paying penalties.
If you happened to forget to include any IRS Form 1099 in your tax return, don’t panic!
Depending on the circumstances, you can still avoid paying penalties.
If you happen to catch the error before the IRS does, then you’re in luck.
You can still avoid paying for penalties.
Make sure that you include a copy of the Form 1099 that you failed to include in your original tax return when filing your amended tax return.
Do note that if you were expecting to receive a refund from the original return, you have to receive your refund first before you file your amended return
If the IRS has already notified you of the discrepancy between your tax return and the 1099 forms that can be traced to you before you can file an amended return, then tough luck – you will have to pay penalties, interest, and additional taxes on the under-reported 1099 income.
You don’t have to file an amended tax return in this case.
Make sure to not under-report on your tax returns to avoid penalties!
And make sure to include all of the 1099 forms that you received.
What if I’m expecting to receive an IRS Form 1099 from a certain client but I didn’t receive any?
There are several reasons as to why you didn’t receive an IRS form 1099 from one of your clients, some of which are:
- Your cumulative earnings from a certain payer did not reach $600 – if you’re an independent contractor, your client won’t send you a Form 1099-MISC or Form 1099-NEC unless your cumulative earnings reached $600.
- It was sent to your old address – your client won’t automatically know if you’ve changed your address. If you’ve moved, then there is a risk that the 1099 form won’t be sent to your current address. To make sure that it is sent to your right address, update your client of any changes to your business address.
- Your client or payer forgot to file it and/or send it to you– your clients are human too… well not counting business entities, but the ones in charge of filing 1099 forms are human. As such, they can forget things too. Don’t worry though. It is not your responsibility to remind them, and you will not be penalized if they failed to issue a 1099 form.
- You were paid via third-party merchants or payment card processors (e.g. Upwork, Paypal, Wise, etc.) – if you received payment via a third-party network transaction or payment card, you should be receiving Form 1099-K. The thing here though is that the threshold amount for third-party transactions isn’t the usual $600. It’s $20,000 or 200 transaction. So unless you reached either of these thresholds, you won’t be receiving a 1099 from payment received via third-party network transactions.
In all of the cases above, whether you receive a 1099 form or not, you are still required to report any income you receive on your corresponding tax return.
There is no penalty if your reported income exceeds the 1099 forms that can be traced to you.
But there is for under reported income (and it’s not cheap!).
A client sent me a W-9 form and said that I should fill it out. Should I?
Yes, you should!
For your client to send you a 1099 form with accurate information, they would need some of your information such as TIN, EIN, and Social Security number, all of which they can get if you properly fill out a W-9 form.
So unless you want a potentially inaccurate 1099 form, fill out the W-9 form your client sent you.
I’m a payer. What happens if I forgot to provide an IRS Form 1099 to my service provider?
As a payer, it is your responsibility to file and furnish a copy of the 1099 form to the IRS and your service provider.
The deadline for the filing of 1099 is as follows:
|IRS Form||Should be submitted to the recipient by||Deadline of filing to IRS||Deadline of E-Filing to IRS|
|1099-NEC||January 31 of the following year||January 31 of the following year||January 31 of the following year|
|1099-MISC (Other Forms)||The last day of February of the following year||March 31 of the following year|
|1099-DIV (Other Forms)||The last day of February of the following year||March 31 of the following year|
|1099-INT (Other Forms)||The last day of February of the following year||March 31 of the following year|
|1099-R||The last day of February of the following year||March 31 of the following year|
Be mindful of the deadline.
Late Fees will be imposed for late submissions.
If you forgot to file a 1099 form to the IRS, it will be considered as non-submission and is subject to penalties.
To minimize your penalties, submit the 1099 form as soon as you can.
Here’s a table of the penalties for late submissions:
|How late is 1099 submitted?||Late Fee/Penalty||Maximum Amount of Penalty (per year)|
|Less than one month late||$50 per form||$194,500 for small businesses; $556,500 for others|
|More than 30 days late but filed by August 1||$110 per form||$556,500 for small businesses; $1,669,500 for others|
|Submitted after August 1||$270 per form||$1,113,000 for small businesses; $3,339,000 for others|
As can be seen from the table above, the sooner you submit your late 1099 form, the less penalty you’ll pay.
So if you forgot to file the 1099 form, file it as soon you can.
But of course, it’d be better if you can file on time.
What if I just don’t file IRS form 1099?
If for some reason you willfully neglect your responsibility as a payer to file 1099 forms, you will be penalized if the IRS catches you.
The penalty for each unfilled 1099 form is $550.
And unlike the penalty for late submission, there is no limit to this penalty.
The types of IRS Form 1099
There are many types of 1099 forms but you probably won’t be encountering all of them during the course of your trade or business.
So instead of talking about all the types of 1099 forms, let’s talk about the most common 1099 forms that you’d probably be using in your trade or business (I’d still be putting a link to all available 1099 forms at the end of this article for reference):
Form 1099-NEC – Non-employee Compensation
Source: IRS Form 1099-NEC
Form 1099-NEC is probably the most popular among all 1099 forms.
Generally, this is where income payments made to independent contractors, freelancers, and/or self-employed individuals are reported.
If you are an independent contractor and have provided goods or services to a particular client, if your cumulative earnings from the same client have reached at least $600, then you should be receiving a 1099-NEC from then.
If you are an individual or business entity that made income payments of at least $600 to an independent contractor in the course of doing your trade or business, then you should file 1099-NEC to the IRS and provide a copy to the independent contractor.
For example, you are a graphics artist.
Company G employed your services for certain projects from time to time during the year.
If the income payments you received from company G reached a total of at least $600 for the year, then you should be receiving a 1099-NEC form from company G by January 31 of the next year.
Other items to be reported on a 1099-NEC form are cash payments made for fish (or other aquatic life) purchased from anyone engaged in the trade or business of catching fish, and payments made to an attorney for his/her services.
1099-MISC – Miscellaneous Information
Source: IRS Form 1099-MISC
Before the reintroduction of Form 1099-NEC, Form 1099-MISC is what you’d use to report income payments made to independent contractors.
With the reintroduction of 1099-NEC however, that’s not the case anymore (except for payments made to medical and health care suppliers or providers).
That’s not to say that the 1099-MISC form isn’t widely used anymore though.
It sill is due to the wide range of income payments that it covers which are as follows (according to Instructions to Form 1099-MISC and 1099-NEC):
- At least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest.
- A cumulative total of at least $600 during the year (for each payee):
- Prizes and awards that are not for services performed (except those given/awarded to your employees)
- Other income payments
- Medical and health care payments
- Crop insurance proceeds
- Generally, the cash paid from a notional principal contract to an individual, partnership, or estate
- Payments to an attorney in connection with legal services (e.g. payments made to an attorney in a settlement agreement)
- Any fishing boat proceeds; In addition, report cash payments of up to $100 per trip that are contingent on a minimum catch and are paid solely for additional duties (such as mate, engineer, or cook) for which additional cash payments are traditional in the industry
- Any excess golden parachute payments
- Section 409A deferrals
- Nonqualified deferred compensation
- For Box 7, enter an “X” if you made direct sales totaling $5,000 or more consumer products to recipient for resale (sales made to a permanent retail establishment are not included). Do not enter a dollar amount on it
For example, if you received a prize from a business that you’re not employed with.
If its fair market value (FMV) is at least $600, then you should be receiving a 1099-Form with box 3 information from that business.
Take note that the income payments made to an attorney to be reported on a 1099-MISC form aren’t the same as those to be reported on a 1099-NEC form.
Payments made to an attorney for his/her services go to Form 1099-NEC.
Payments made to an attorney in connection to legal services (e.g. those made in a settlement agreement) go to Form 1099-MISC.
1099-DIV – Dividends and Distributions -and- 1099-INT – Interest Income
Source: IRS Form 1099-DIV
Source: IRS Form 1099-INT
We’ll be talking about these two forms together since they are similar (they both cover passive income).
If you have investments in stocks or mutual funds, you have probably received some sort of returns from them (e.g. dividends from stocks, capital gains distribution from mutual funds).
If you did receive dividends or capital gains of at least $10 (be it cash or other property), you should receive a 1099-DIV form.
Dividends/capital gains aren’t the only ones that can be reported in a 1099-DIV form.
The following can be reported as well:
- Any withheld and paid foreign tax on dividends and other distributions on stock
- Any withheld federal income tax on dividends under the backup withholding rules
- Payment of $600 or more in money or other property as part of a liquidation
Stocks and mutual funds aren’t the only kinds of investment that can earn you passive income though.
There are other kinds of investments that can earn you passive income in the form of interest (e.g. savings or time deposits).
If you received at least $10 of interest income from a bank or any other financial institution, you should receive a 1099-INT form.
Other items that can be reported in a 1099-INT form are as follows:
- Any withheld and paid foreign tax on interest
- Any withheld (and did not refund) federal income tax under the backup withholding rules regardless of the amount of the payment
1099-C – Cancellation of Debt
Source: IRS Form 1099-C
In the course of doing your trade or business, you may sometimes receive income without any increase in your assets.
This can happen if at least one of your creditors cancels or pardons a portion of your outstanding debt.
The IRS treats the cancellation of debt as income on the part of the debtor, and as such, will form part of the debtor’s taxable income (unless it’s due to insolvency or bankruptcy).
This is why if a creditor or your pardons a portion of your debt (or maybe the entire debt), expect to receive a 1099-C form from them.
1099-G – Certain Government Payments
Source: IRS Form 1099-G
The 1099-G is where the federal, state, or local governments report payments of:
- Unemployment compensation
- State or local income tax refunds, credits, or offsets
- Reemployment trade adjustment assistance (RTAA) payments
- Taxable grants
- Agricultural payments
Just like how individuals and business entities have the responsibility to report income payments made in the course of doing trade and business, the federal, and various state and local governments are responsible for reporting income payments they made to taxpayers.
The 1099-G form is where they report such payments.
1099-R – Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
Source: IRS Form 1099-R
Withdrawals made from a traditional IRA are taxable (in most cases).
This is why you’ll probably receive a 1099-R form reporting the total withdrawal you made from your IRA.
And not only that, distributions you receive from pensions, annuities, retirement or profit-sharing plans, insurance contracts, and other plans of the same nature are also re-portable in a 1099-R form.
So if you’re someone who’s already receiving his/her pension distributions, you’re probably already familiar with the 1099-R form.
1099-S – Proceeds from Real Estate Transactions
Source: IRS Form 1099-S
Real estate transactions also get their own IRS Form 1099 which is the 1099-S.
In this form, the sale of the following are reportable transactions:
- Improved or unimproved land, including air space
- Inherently permanent structures, including any residential, commercial, or industrial building
- A condominium unit and its appurtenant fixtures and common elements, including land
- Stock in a cooperative housing corporation
- Any non-contingent interest in standing timber
The gross proceeds from such sales should be reported in the 1099-S form.
This particular form helps the IRS in making sure that its taxpayers are reporting the right amount of capital gains in their returns.
Links to the 1099 forms available on the IRS website