State 1099 Reporting Requirements Follow PATH of Tighter Deadlines

This blog was last updated on March 11, 2019

The changes in state tax reporting thus far in 2017 reflect much of what we learned in 2016: State governments want more information, and they want it sooner than before.

Some examples of this phenomenon can be found in states such as Iowa, Maryland, Oklahoma, and Connecticut. Iowa now requires both W-2 and 1099 reporting when just a couple of years ago it required neither. Maryland now requires forms 1099-MISC with Maryland withholding to be reported.

Oklahoma now requires W-2s to be reported to its Department of Revenue, and Connecticut recently passed legislation that would require Forms 1099-K to be reported as well. These types of changes require compliance managers to be on high alert for all tax reporting changes as states constantly update their requirements.

States Respond to the PATH Act

The Protecting Americans from Tax Hikes Act, more commonly known as the PATH Act, accelerated federal due dates for W-2s and 1099-MISCs reporting non-employee compensation from March 31 to January 31.One of the main themes so far in 2017 tax reporting changes is that the ripple effect of the PATH Act is still being felt in states.

In response to the IRS deadline change, many states that previously had February or March due dates for W-2s and 1099s have begun to move up their due dates to January 31 as well. With these changes, a large majority of states now have January 31 reporting deadlines for W-2s or 1099s, and even more changes should be expected as states continue to try and match federal deadlines.

State Reporting Adds Complexity

An important thing to remember is how nuanced information reporting can be, especially with regard to the Resident Reporting Requirement many states have adopted. The Resident Reporting Requirement is, generally speaking, a filing requirement where a state DOR requires 1099 data to be filed with the state if the payee/recipient is a resident of that state.

That means that resident 1099s – even those without state withholding – are required to be reported. While some states have narrow reporting requirements stipulating that only certain residents’ 1099s have to be reported, other states with broader reporting requirements require reporting of all 1099s issued to residents of their states. Details like those can cause companies to suffer penalties even when filers think they’ve done all that is required.

Will States Stiffen Penalties?

Since Tax Year 2015, federal penalties and penalty thresholds have continued to increase for failure to file information returns correctly, failure to file information returns on time, and failure to file corrections at all. States impose their own penalties, so it’s worth monitoring whether states will follow the lead of the IRS in making penalties more severe.

On the federal side, IRS penalties for filing infractions have actually more than doubled since Tax Year 2015, so failure to promptly and correctly file these information returns with the IRS and provide copies to the proper recipients could lead to significant penalties.

Until recently, in all cases other than intentional disregard, the maximum amount of penalties that a business could face for not filing correct information returns or not providing correct payee statements was $100 per return with all penalties capped at $1.5 million for either infraction.

Now, penalties have more than doubled, with penalties reaching up to $260 per return with a maximum penalty for either infraction of more than $3 million.

Organizations Need to Rethink 1099 Reporting

As noted previously, there are no caps on penalties for those who intentionally disregard their information reporting requirements, making it even more essential that everyone file promptly and correctly. And with states already falling in line with the IRS on deadlines, state penalties could also increase and provide an even more severe threat to filers.

Now is the time to avert expensive penalties at all levels by centralizing and automating the 1099 reporting process. In-house compliance methods just won’t keep up with the new demands of compliance. Organizations need to rethink their strategies in order to avoid potentially expensive and embarrassing consequences.

Moving on Up: States Set Earlier 1099 Reporting Deadlines

Last year, 14 states pushed up their due dates for W-2s and 1099s to January 31:

• California
• Delaware
• Georgia
• Idaho
• Iowa
• Maryland
• Massachusetts
• Ohio
• Oregon
• Pennsylvania
• Rhode Island
• South Carolina
• Wisconsin
• Vermont

This year, another 7 states have already moved up their due dates:

• Arizona
• Arkansas 
• Connecticut
• Delaware
• Kansas
• Minnesota
• Missouri
• Montana