Form 1099-MISC

If you are a small business owner and made payments to independent contractors, it is likely that this post will be applicable to you, and what you need to do to protect yourself and your business from penalties.

Before we begin, what is a “Form 1099-MISC”?

A Form 1099-MISC is used to report payments for services made by your business typically to your independent contractors. You will be required to file the form if those payments total $600 or more for the tax year for any individual. Typical payments include rents (Box1), royalties (Box 2), and compensation to independent contractors (Box 7), such as consultants, web designers, accountants, lawyers, and cleaning services.

What if you don’t file? Penalties.

Missing an IRS deadline is worrisome at best and financially crippling at worse.

Here are the penalties the IRS will be assessing on each form you do not file timely:

  • $50 per information return if you correctly file within 30 days; maximum penalty $532,000 per year ($186,000 for small businesses).

  • $100 per information return if you correctly file more than 30 days after the due date but by August 1; maximum penalty $1,596,500 per year ($532,000 for small businesses).

  • $260 per information return if you file after August 1 or you do not file required information returns; maximum penalty $3,193,000 per year ($1,064,000 for small businesses).

If failure to file was intentional, the minimum penalty is $530 per information return with no maximum to the total penalty.

How would the IRS know that you didn’t file your Form(s) 1099-MISC?

When you file your individual income tax return, Form 1040, you will need to attach a “Schedule C - Profit or Loss from Business” with your filing. This schedule will report all gross income and expenses related to the operation of your business/profession as a sole proprietor or single member LLC.

For your 2016 filings, the schedule will ask you a series of questions (indicated in the image above):

  • Did you make any payments in 2016 that would require you to file Form(s) 1099?

  • If yes, did you or will you file required Form(s) 1099?

Again, if you made payments to any person(s) in the amount of $600 or more for services, you are required to file and issue a Form 1099-MISC.

To report expenses for all your independent contractors, you will provide that information on Schedule C box 11 for “contract labor”, if the amount in this box is relatively high and your answers to the above mentioned questions are “No”, then your return might actually be subject to scrutiny by the IRS for not filing your forms.

What are the filing deadlines?

Beginning in 2017, If you're filing Form 1099-Misc and have amounts to report in Box 7: Nonemployee Compensation,  the new filing deadline is January 31, 2017.

For all other reportable amounts (no amount in Box 7), your filing deadline remains February 28 for all paper filings or March 31 for all electronic filings.


Anne Chan