After years of handling 1099’s, we’ve seen some … interesting filings. We’ve collected a few below as things you might want to watch out for when completing your filing. We’ve removed all identifying characteristics to protect the filers.
The Incorrect Corrected Filing
This will be important with the earlier filing deadline for W-2’s and Box 7 on the 1099-MISC forms. When filing a corrected form, be sure to check the box marked “Corrected” at the top of the page.
I know. We were surprised to hear from someone that they had not done that on their Corrected form, too. But it can be easy to miss. The good thing about Corrected forms is you can always do another one – and be sure to check the box at the top.
(As an aside, we need a better term for “incorrect corrected filings.” Please make suggestions in the comments box at the bottom.)
Typos in the TIN and Name
The IRS actually checks TIN-name matches against their database. When they find the information that doesn’t match their records, they issue a CP2100 or CP2100A. They don’t try a different combination or shift a few numbers or characters around to try to make a match. The CP2100/CP2100A can later result in a penalty of up to $260 for tax year 2016.
Fortunately, the IRS understands that honest mistakes happen. The IRS provides a method for filers to contest a penalty. Filers can provide information to abate the penalty. Still, double check your work to make sure you have it correct. Even better, import your data from a place you know is already correct.
What Box Is Right?
If I had a dime for every time I have heard that question, I … would not be writing this blog post.
We don’t know. We didn’t pay the person. We don’t have an existing relationship with them. We do not know what the payment was for. Rent? Royalties? Non-employee income? Fishing boat proceeds? Yes, fish boat proceeds are a real thing on a 1099-MISC form – see the instructions if you don’t believe me).
Seriously, it is important to get it right. But we can’t provide advice on which box to use, just general information.
Your State May Require a 1099 Filing
“Wait a minute, I have to report 1099’s to the state? I never heard that before.” Depends on the state, but yep, you may have a filing requirement.
Many states receive forwarded information from the IRS. These states take part in the Combined Federal State Filing Program. Even some states that take part in the CF/SF info may require a separate filing if there were taxes withheld.
Other states require a separate filing. That could be via e-File, paper filing, or sending in a CD-ROM. Check with your state if you are not sure, but don’t ignore the requirement. States can penalize you for failing to file, just like the IRS can.
Am I the Payer?
If you are reading this blog post, most likely the answer is, “yes.” The Payer is the one who paid. The Payee or Recipient is the one who received the payment.
A 1099-MISC form has space for both. If you get them backwards, you will eventually need to fix it with a Corrected form (see above).
Must Get This Done Now
There is a deadline. That doesn’t mean you should rush. Like anything else where you know the deadline in advance, planning is key. Gather your data early. Collect W-9’s before you pay vendors so you aren’t scrambling at the last minute. Each week, make sure your accounting records reflect all payments. Don’t wait to enter them on January 31st.
Scrambling at the last minute is a sure way to mess up a filing. And to stress yourself out.
Do You Think Anyone Will Notice?
This last one is more “attempted fraud” than “common mistake,” but I wanted to include it. If you wanted to claim a huge refund, you might:
-
Enter a fraudulent 1099 form with a huge income amount
-
Specify a massive amount of withheld tax.
-
File a tax return claiming a refund of the withheld amounts.
What could possibly go wrong? Well, it depends on how you file the form, but…
Q: What is the best way to find anomalies in large data sets?
A: A computer program!
Q: Guess who writes computer programs?
A: Services that e-File with the IRS!
Q: Guess who talks to the IRS almost daily?
A: We do!
Q: Guess who is extraordinarily interested in stopping fraud?
A: IRS Criminal Investigation Special Agents!
You can see where this is going. While someone filing a 1099 that later allows them to claim a six figure refund may have made a mistake in doing so … it is the kind of mistake that the IRS will prosecute over. So, definitely don’t make that mistake.
Really, Slow Down
Except for the last one, these are easy mistakes to avoid.
Take your time when you file. Complete all the necessary steps with the correct information. Breathe deeply. Focus. It will be all right.
Calmer now? Good. The end of the year approaches. Be ready for your January tax filings.
Ready to move forward with your 1099 process? Schedule a demo today and let us make your life easier in January.
