Lots of confusion has surrounded 1099s and who should be issued a 1099. Fortunately, this has been followed by many articles clearing up the fog. What we want to talk about in this article, however, are the fees and penalties for not filing 1099s, as well as some tips to avoid these problems in the future.
The penalty rates have been unchanged for a while now (with an exception to an increase in the max penalty), but it is no less important than in the past. The table below depicts the penalties and applies to small businesses with gross receipts of $5 million or less. Although businesses with more than $5 million of gross receipts have a higher maximum, the penalty per return matches that of small businesses.
| Time returns filed/furnished | Penalty |
|---|---|
| Not more than 30 days late | $50 per return / $187,500 maximum |
| 31 days late – August 1 | $100 per return / $536,000 maximum |
| After August 1 or Not At All | $260 per return / $1,072,500 maximum |
Additionally, intentional disregard to file the required 1099s will lead to a penalty of $530 per return.
We get it, sometimes it’s not your fault. Whether a vendor won’t get back to you or they out right refuse to give you a W-9, there are times when you just can’t get the information you need to be a law-abiding company. With all that said, you would still be held liable for not filing 1099s for eligible vendors. There’s some good news however, the IRS understands the position you could end up in and thus allows you to withhold tax from payments before they are transferred to the vendor. Specifically, when you don’t get a TIN from a vendor (or an inaccurate TIN) you are required to withhold at a flat rate of 24% and report the amount on their 1099. Hopefully this will incentivize the vendor to provide you with the required information, so they can receive full payment for their services.
To bypass all the headache, it’s a good practice to require all 1099-eligible vendors to provide you with a completed W-9 before payments occurs. Unfortunately, your accountant/bookkeeper will most likely become aware of the payment after the fact, which is why this might involve some preemptive efforts on your part in terms of understanding who should be 1099’ed. Don’t worry about this being a problem when Paragon is your accountant, we are more than happy to walk you through the process in determining who’s 1099-eligible.
With the deadline just around the corner, January 31st, we’ll help you get those 1099’s out before the due date. Call Paragon today to schedule an appointment!
