Hi, I’m Bette Hochberger, CPA, CGMA. As a business owner, understanding your responsibilities when it comes to issuing 1099 forms is essential for compliance and successful tax reporting. These forms play a critical role in reporting payments made to independent contractors and freelancers. For today’s quickie, I will walk you through the key aspects of sending out 1099s, including deadlines, consequences of late submissions, and what employees can do if they don’t receive their forms on time.

Deadline for Sending 1099s

The deadline for sending out 1099 forms is typically January 31st of the year following the tax year in which payments were made. For example, for payments made in 2024, the forms must be sent out by January 31, 2025. This deadline applies whether you are sending the forms electronically or by mail, so plan ahead to ensure timely delivery. It’s wise to start gathering the necessary information about your contractors well before this date, so you’re not scrambling at the last minute.

Consequences of Late Submission

Failing to send out 1099s by the deadline can result in penalties imposed by the IRS. The penalties vary depending on how late the forms are filed:

– $50 per form if filed within 30 days of the deadline.
– $100 per form if filed more than 30 days late but before August 1.
– $260 per form if filed after August 1, or if not filed at all.

These penalties can add up quickly, especially if you have multiple contractors. For example, if you fail to file 10 forms by the deadline, you could be looking at a potential penalty of $500 if filed within 30 days. If you end up filing them after August 1, that figure could skyrocket to $2,600! Therefore, it’s vital to prioritize sending these forms on time to avoid unnecessary costs.

Employee Penalties for Late 1099s

While the penalties for late submission primarily fall on the business, employees can also face challenges if they do not receive their 1099s by the deadline. Without the necessary documentation, independent contractors may struggle to accurately report their income on their tax returns, potentially leading to:

– Delayed refunds: Without a 1099, contractors may need to file extensions or face delays in processing their returns. This can be particularly frustrating if they were expecting a refund.
– Inaccurate reporting: If they report incorrect income due to missing forms, they could be subject to audits or additional taxes owed. This could lead to penalties from the IRS for underreporting income, further complicating their financial situation.

What Employees Can Do If 1099s Are Not Sent

If an employee who should receive a 1099 does not get it by the deadline, they should take the following steps:

– Contact the Business: Reach out to the business that issued the payments. There may be a simple oversight, and the business can resend the 1099 quickly. This first step is crucial, as most issues can be resolved through direct communication.

– Keep Records: Maintain detailed records of income earned, including invoices and payment confirmations, to accurately report earnings if the 1099 doesn’t arrive. Having a clear record can help them substantiate their income even if the 1099 is missing.

– File a Complaint: If the business fails to respond or provide the necessary documentation, employees can file a complaint with the IRS. They can report the issue using Form 3949-A if they suspect tax fraud or other serious issues. This can serve as a way to protect their interests and ensure that the business complies with tax regulations.

Sending out 1099s is an essential responsibility for businesses working with independent contractors. Make sure you are adhering to the January 31st deadline so that you avoid penalties and ensure your contractors have the necessary documentation to report their income accurately. Clear communication with your contractors and maintaining accurate records will help create a smooth process for everyone involved.

Schedule a meeting with us to make the most of your business’s tax season, ensuring compliance and fostering positive relationships with your contractors!

I’ll see you next time!