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1099 Penalties

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The below penalties apply to persons required to file informational returns. The penalties apply for both paper filers and electronic filers.

  • Failure To Furnish Correct Payee Statements (Section 6722)

    If any failure to provide a correct payee statement is due to intentional disregard of the requirements to furnish a correct payee statement, the penalty is at least $250 per payee statement with no maximum penalty.

  • Civil Damages for Fraudulent Filing of Information Returns (Section 7434)

    If you willfully file fraudulent information return for payments you claim you made to another person, that person may be able to sue you for damages. You may have to pay $5,000 or more.

  • Failure to File Correct Information Returns by the Due Date (Section 6721)

    If you fail to file a correct information return by the due date and you cannot show reasonable cause, you may be subject to a penalty. The penalty applies if you fail to file timely, you fail to include all information required to be shown on a return, or you include incorrect information on a return. The penalty also applies if you file on paper when you were required to file electronically, you report an incorrect TIN or fail to report a TIN, or you fail to file paper forms that are machine readable.

    The amount of the penalty is based on when you file the correct information return. The penalty is:

    • $30 per information return if you correctly file within 30 days (by March 30 if the due date is February 28); maximum penalty $250,000 per year ($75,000 for small businesses, defined below).
    • $60 per information return if you correctly file more than 30 days after the due date but by August 1; maximum penalty $500,000 per year ($200,000 for small businesses).
    • $100 per information return if you file after August 1 or you do not file required information returns; maximum penalty $1,500,000 per year ($500,000 for small businesses).
  • Exceptions to the penalty :
    • The penalty will not apply to any failure that you can show was due to reasonable cause and not to willful neglect. In general, you must be able to show that your failure was due to an event beyond your control or due to significant mitigating factors. You must also be able to show that you acted in a responsible manner and took steps to avoid the failure
    • An inconsequential error or omission is not considered a failure to include correct information. An inconsequential error or omission does not prevent or hinder the IRS from processing the return, from correlating the information required to be shown on the return with the information shown on the payee's tax return, or from otherwise putting the return to its intended use. Errors and omissions that are never inconsequential are those related to (a) a TIN, (b) a payee's surname, and (c) any money amount.
    • De minimis rule for corrections. Even though you cannot show reasonable cause, the penalty for failure to file correct information returns will not apply to a certain number of returns if you:
      • Filed those information returns,
      • Either failed to include all the information required on a return or included incorrect information, and
      • Filed corrections by August 1.

    If you meet all the conditions in a, b, and c above, the penalty for filing incorrect returns will not apply to the greater of 10 information returns or ½ of 1% of the total number of information returns you are required to file for the calendar year.

    If any failure to file a correct information return is due to intentional disregard of the filing or correct information requirements, the penalty is at least $250 per information return with no maximum penalty.