The Most Common Form 1099 Filing Mistakes (and how to correct them)

An essential component of year-end planning is information return filing. These forms come with a special set of rules. When not filled out properly, your business can be subject to large penalties or other potential financial and reporting issues.

Information returns forms are generally used to notify the government and taxpayers about taxable payments you or your business made. The most common types of information returns at year-end are W-2 and 1099 forms. Here’s what you should be aware of regarding this federal payroll reporting requirement, including how to correct any errors.

What is tax Form 1099?

At its most basic, the difference between W-2 and 1099 forms is this:

• W-2 forms are given to employees of a company
• 1099 forms are given to contractors working for a company or reporting of other income types to recipients

If you’ve hired an independent contractor, you’ll have to prepare a 1099. The correct filing of the Form 1099 is incredibly important.

Common 1099 Filing Errors

1. Not filing a form when a form is needed
The biggest mistake we see is that taxpayers make is neglecting to file an information return when one is required. There are several situations that require a Form 1099 or other information return to be filed. If you’re not sure whether or not you need to file a 1099 form, you can download our 1099 e-book to learn more.

2. Not filing by the due date
In general, all information returns are due to the recipient by January 31, 2024. Forms W-2 and 1099-NEC are due to the IRS (Internal Revenue Service) by January 31, 2024, as well, regardless of if you electronically or paper file.

For the most part, the rest of the 1099 forms are due to the IRS by February 28, 2024, if paper filing or March 31, 2024, if electronically filing.

The best way to avoid issues with 1099 filing is to start preparing early. Review your vendor information before year-end to be sure you have all the Form W-9s and other information required to file these forms.

3. Completing the wrong form
If paper filing, be sure to use the correct year of the form. Make sure to prepare the red Copy A to be filed with the IRS. Also, ensure you start with the correct Form 1099, ex. 1099-MISC or 1099-INT, etc.

4. Using the wrong box on the form
When preparing your forms, even if you have the correct form, be sure to use the proper box on the form. On the Form 1099-MISC, there are several boxes the IRS taxes in different ways:

• Rent (box 1) may be shown on a 1040 Schedule E
• Other income payments (box 3) may be shown on a 1040 Schedule C or other 1040 form
• The IRS will treat different types of income differently as shown on different boxes. Different types of income may have different tax rates and rules based on the box and form it is placed on.

5. Not reporting a Taxpayer ID Number (TIN) or reporting an incorrect TIN
Be sure you are receiving and regularly updating the Form W-9 for your vendors so you can be sure you have appropriate information to file information returns at year-end. You can also go to the IRS website and run the information through a TIN verification to see if what you received from your vendor matches the IRS records.

Another key thing to watch out for here is using the appropriate name for the TIN received. In some cases, you will receive a Social Security number for a Schedule C business but will receive the entity's doing business as (dba) name instead of their personal name. When the IRS attempts to match the Social Security number with the dba name in the system, they will not match because they will be expecting a person’s name. This will likely trigger an IRS Notice and possibly a penalty.

6. Using incorrect information to complete the form
Double check your records to be sure you are using the appropriate amounts for the correct year and the correct vendor. Make sure you are using the vendor’s correct name and address for the form. Several accounting systems will track 1099 information for you, but you must set it up correctly.

7. Filing a paper return when filing electronically is required
New e-filing requirements, effective January 1, 2024, will affect many taxpayers. The IRS issued new regulations notably reducing the threshold for the number of returns required to be electronically filed. Effective January 1, 2024 (for tax years ending on or after December 31, 2023), the threshold is reduced from 250 to 10 and requires filings to be aggregated.

The previous requirement was 250 returns of any one type. This change may affect those who have historically paper filed a limited number of many different returns and forms.

You can e-file with the IRS using the FIRE system or the IRIS program. In both cases, you will need to apply for a transmitter control code (TCC) to e-file. This process can take up to 45 days, so apply early in order to e-file by the January 31, 2024, deadline.

8. Not sending in a Form 1096 transmittal when paper filing
A Form 1096, a transmittal form, is required when paper filing. One Form 1096 is required per type of 1099 filed. This helps the IRS to know if they have received and read all forms attached. This form is not required when you electronically file.

9. Not preparing machine readable forms
The IRS will machine read these forms. It is important to write legibly and in dark ink so the forms can be machine read correctly.

10. Improper formatting of name, address, etc.
Completing a name or address in the wrong format will cause the form to be misread, as it is read by machines. Be sure to fill out the form in the proper format so it can be processed correctly.

How to Correct Form 1099 Errors

It is highly unlikely that you will go through 1099 filing season and not come across at least one required correction, but correcting forms is easy once you understand the process.

It is important to note that, unlike a Form W-2 correction form, Form W-2c, there is no separate 1099 correction form. It is the same form as the original 1099 with the “Corrected” box checked.

There are two types of 1099 errors to be corrected. Type 1 only requires one Form 1099 to be filed to correct the error. Type 2 requires two 1099 forms to be filed to make the correction.

Type 1 Errors

Type 1 errors occur when you prepare a form with:

• The incorrect amount
• An incorrect code or checkbox
• An incorrect name or address for payee (but the correct TIN)
• If you filed a form when one should not have been filed (in this case your corrected form would show zeros)

To correct Type 1 errors, file the correct form with the correct amount, code, checkbox, name or address and check the “CORRECTED” box (generally located at the top of the form). If you used an account number on the original submission, be sure to use the same account number on the corrected form.

Submit the corrected 1099 form to the recipient and prepare the red Copy A to send to the IRS with the Form 1096 transmittal if paper filing. For electronic filing, you do not need to send in a Form 1096, nor should you mail in the originally filed forms with the correction to the IRS.

Type 2 Errors

Type 2 errors occur when you prepare a form with:

• The wrong payer information, including the wrong Taxpayer ID Number (TIN)
• The wrong recipient information, including the wrong TIN
• When you prepare the wrong form (like a 1099-INT instead of a 1099-DIV)

To correct type 2 errors, you will need to file two form 1099s:

The first 1099 will be with the exact same payer and recipient information as the originally filed form, but the amounts on the form will be all zeros and the “CORRECTED” box will be checked. This will remove the originally filed form from the IRS records.

Then, you will need to file a new Form 1099 with the appropriate information as an originally filed form (not a corrected form). Send the corrected and new original forms to the recipient and prepare the red Copy A to send to the IRS with the Form 1096 transmittal, if paper filing. A different Form 1096 is required for each type of Form 1099 filed. For electronic filing, you do not need to send in a Form 1096.

Other Items to Note in 1099 Corrections

The corrected form should be filed in the same manner the original was filed. If the original was e-filed, the correction should be e-filed. If the recipient of the original form has different information in their records, they will likely contact you for an explanation and/or correction of the Form 1099.

Occasionally, this difference in records is due to a check being written from your bank account and not yet deposited in the recipient account. It is important to investigate differences noted from the recipients. The information reported on those forms will need to match what is reported on their tax return and you don’t want to be the cause of incorrect information.

An IRS notice is the other main reason to amend a form. This generally relates to a TIN that doesn’t match what the IRS has for the recipient's name.

Just remember—when correcting forms, be sure to verify the type of error, so you know if you need to prepare one 1099 or two to complete the correction.

Form 1099: Frequently Asked Questions

Will I get audited for not filing a 1099?

If a contractor has received more than $600 in payments in the course of the year and receives a 1099, they must report that income on their 1040 tax form. Some contractors may be exempt from paying taxes depending on their specific circumstances. If you qualify for an exemption, you must follow IRS instructions to request one. It is usually still your responsibility to prepare the Form 1099.

Do credit card payments to 1099 vendors need to be tracked for 1099 filing?

The short answer is no, even if you paid the vendor more than $600. In the case of electronic payments (credit card payments), the payment processor will handle any required reporting of payments. Those payment processors are required, under certain circumstances, to send out a different version of the 1099, called a 1009-K.

How do I know whether my vendor needs a Form 1099-NEC or 1099-MISC?

You would usually prepare a Form 1099-NEC when someone provides services for you. If you pay someone for rent or other income items such as prizes or awards, a 1099-MISC is usually required.