Form 1099 Reporting Corrections: Best Practices to Maintain Compliance

This blog was last updated on January 31, 2024

Tax Year 2018 brought important and likely unwelcome changes for organizations filing Forms 1099. At the same time the IRS eliminated the 30-day extension of time (EOT) for filing Forms W-2 and 1099-MISC reporting non-employee compensation, the agency also increased penalty amounts for late or incorrect filings. Accurate information and corrections on Forms 1099 is more critical than ever for organizations in avoiding both financial penalties and the hassle and expense of B and P notices. The best way to deal with corrections, of course, is to avoid them altogether, something organizations can accomplish through year-round, real-time matching of names and tax identification numbers (TINs).

1099 corrections: Here’s what payers need to know

The cost to file a correction increases as time elapses, so dealing with corrections rapidly is critical to the reporting process. IRS penalties for late or incorrect filings currently stand at:

• Files received not more than 30 days late: $50/form, maximum $545,500
• 31 days late-August 1: $100/form, maximum $1,637,500
• After August 1: $270/form, maximum $3,275,500
• Intentional disregard: $540 per return with no maximum

Complicating matters is the fact that for most companies, dealing with corrections isn’t just about tracking one form type or deadline. The corrections process becomes exponentially more complex when an organization files a variety of different forms types with varying deadlines. Currently, filing deadlines are:

• Jan. 31: 1099-MISC box 7
• March 31: 1099-MISC non-box 7, 1097-BTC, 1098s, other 1099s, 3921, 3922, W-2G
• May 31: 5498, 5498-SA, 5498-ESA

The new state of 1099 corrections

The end of the EOT for forms W-2 and 1099-MISC box 7 has heaped pressure on organizations to make sure information is accurate with tighter deadlines. If past trends hold, the number of late and incorrect forms is likely to rise year-over-year. In the first year of the PATH Act, for example, late filings of W-2 forms doubled, and corrections went up by 30 percent.

A lack of predictability and know your customer (KYC) processes is the enemy for accounts payable and finance professionals, who are either always working with new contractors and vendors each year or constantly onboarding new customers. With less time to prepare forms and the stakes higher for making errors, clean data and well-defined processes are critical. Any sort of preemptive method for avoiding corrections becomes extremely important as well.

Generally, there are three types of corrections organizations file:

• Name Changes (Two Return/Transaction Type)
• TIN Changes (Two Return/Transaction Type)
• Amount Changes (One Return/Transaction Type)

Two of those correction types are generally avoidable with TIN matching, Name and TIN changes. The IRS gives payers the ability to prevent errors upfront by performing name and TIN matches against its database. Matching names and TINs before filing tax forms enables payers to take action before a filing error occurs. There are two types of TIN matching the IRS allows:

• Bulk TIN Matching matches many records against the IRS’s database at one time.
• Interactive TIN Matching enables payers to quickly verify on the fly that information is correct.

Cleaning errors up helps resolve the two biggest issues that are about to further complicate 1099 corrections. By proactively reducing the number of errors in an original filing with the IRS, companies have fewer corrections to submit and fewer B and P notices to address in time. They can then reallocate resources to different projects. Of course, the other positive result of proactively avoiding errors, and therefore corrections, is staving off IRS penalties.

Best practices for filing 1099 corrections

Interactive TIN matching enables organizations to put in place a critical best practice for avoiding 1099 errors and corrections: verifying 1099 recipient information during the onboarding process rather than in bulk just before tax season. To the greatest extent possible, companies should know as soon as they engage with 1099 recipients that the information they have for those parties is accurate.

Although the IRS eliminated EOT for Forms W-2 and 1099-MISC box 7, organizations can still apply for extensions for other forms—at least for now. So, if an organization filed, for instance, a 1099-R on time on March 25 but ended up needing to make a correction to the form on April 5, the correction wouldn’t be late because of the 30-day extension.

Another best practice is to have automated, centralized reporting process. Automation, which includes features such as interactive TIN matching, enables payers to eliminate errors and develop repeatable, reliable reporting processes. Centralizing reporting in one team, using one automated system, not only guards against errors, it also saves time and money in the reporting process.

Predictability is one of the critical goals of any organizations that handles 1099 reporting. Unfortunately, the regulations surrounding 1099 corrections are unpredictable and liable to have negative and costly consequences.

Fortunately, organizations with the right tools and processes can deal with change efficiently and effectively. Having best practices in place to avoid corrections is the best way to stave off the potentially negative byproducts of the corrections process.