IRS Tax Problems

Breaking Down 1099s: Everything You Need to Know About Potential Non-Filing Penalties

Breaking Down 1099s: Everything You Need to Know About Potential Non-Filing Penalties

According to one recent study, approximately one out of every five jobs in the United States is held by an independent contractor. Over the course of the next decade, that number could rise to about 50% of all workers. Which means that if you're a business owner, the chances are high that you're already dealing with freelance employees, and if you're not, you will be sooner rather than later.

To ensure that those employees are able to file their taxes A.) properly and B.) on time, the duty falls to you to send them a 1099 at the end of the year. If you ever held the opinion that this is "something you don't have time for" or "a problem that will work itself out at some point," you're definitely going to want to think again. Not only are the consequences great--they are also immediate.

1099 Non-Filing Penalties: What You MUST Know

As a small business owner, you must send copies of an employee's 1099-MISC form to the IRS by January 31 if you're reporting non-employee compensation, February 28 if you're not, or March 31 if you're not and are also filing electronically.

If you fail to do so, whether intentionally or totally accidentally, you instantly open yourself up to a world of trouble from a financial perspective. For the sake of example, let's say that you didn't file 1099s for ANY employees and must now do so beyond the deadline. In that case:

  • Fines will range between $30 and $530 per 1099, with a maximum fine of $1,072,500 for the year.

Keep in mind that this is just the starting point for filing relatively quickly after a missed deadline. The longer you wait, the more you'll pay. Currently, the timeline breaks down as follows:

  • If you managed to file within 30 days of the due date, you'll only be charged a penalty of $50 per 1099 with a yearly maximum total of $187,500.
  • If you filed your 1099s after the due date but by August 1 of the same year, your penalty will increase to $100 per 1099 with a yearly maximum amount of $536,000.
  • If you filed your 1099s after August 1, that penalty increases to a massive $260 per 1099 with a yearly maximum amount of $1,072,500. 

When you consider that to be defined as a small business in the first place you needed to make $5 million or less in average revenue, getting hit with a $1 million-plus penalty is obviously a situation you'd do well to avoid if you want to stay a small business for much longer.

In the end, it's important to take these 1099 non-filing penalties as yet another reason you should never, under any circumstances, mess with the Internal Revenue Service. As the old saying goes, "the house always wins."

Martinez & Shanken, PLLC writes for TaxBuzz, a tax news and advice website. Reach the firm at [email protected]

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Julie Farless

Julie Farless

Martinez & Shanken, PLLC is a Certified Public Accountant (CPA) firm based in Gilbert, Arizona. We provide a full range of accounting, bookkeeping, consulting, outsourcing and business services, but we specialize in tax preparation. We work with you to ensure that your personal or business processes are conducted in a manner that ensures ongoing integrity in your financial transactions. We are available to answer your questions and help with your ongoing tax planning and changing business needs.

Deborah Martinez & Earl Shanken
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Arizona

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