Preparing Forms 1099-NEC can be difficult, but we are here to help simplify things! We have compiled this list to help ensure that you don’t make these common errors for Form 1099-NEC.
A Brief History
To reduce errors for Form 1099-NEC, it is important to know what this form is and how it is used.
Form 1099-NEC was reintroduced in 2020. It’s based on an older version of the form that hasn’t been used since 1982. Due to the reintroduction of Form 1099-NEC, there are some big changes to certain types of tax reporting.
This form is used to report nonemployee compensation amounts to the IRS. A nonemployee is defined as a person or business who is not employed by your company, such as independent contractors, freelancers, or outsourcing companies. Learn more about determining who should receive a Form 1099-NEC by navigating to our article “Who receives a Form 1099-NEC?”
Alternatively, if you need to report income amounts made by employees, then you should use Form W-2 instead.
Before tax year 2020, nonemployee compensation amounts were reported using box 7 of Form 1099-MISC. Since this is no longer the case, the role of Form 1099-MISC has shifted for use in other types of compensation.
This change helps to separate certain types of amounts that were previously reported on Form 1099-MISC and staggers the due dates for these forms 1099.
Most Common Errors for Form 1099-NEC
Once you have completed the following:
- Determined who must receive a Form 1099-NEC,
- Collected your business taxpayer information,
- Sent for and retrieved your payee information through a completed W-9 form,
- And finalized and collected the payment amounts from your accounting system;
Then, it sounds like you are ready to complete and file your 1099-NEC forms.
However, before you press that print or e-file button, take a moment to review your information and forms for accuracy in order to avoid errors for Form 1099-NEC which can result in potential penalties or other problems.
When completing your forms, ensure that you don’t make these common errors for Form 1099-NEC:
Not Submitting a Filing
If you are required to file these information returns and fail to file by the due date, then you may be subject to the following penalties:
– $60 per information return if you correctly file within 30 days (by March 30 if the due date is February 28);IRS General Instructions for Certain Information Returns
– $120 per information return if you correctly file more than 30 days after the due date but by August 1;
– $310 per information return if you file after August 1 or you do not file required information returns;
There are some exceptions to the penalty, though. More information regarding exceptions can be found in the IRS instructions.
Fines can accumulate pretty quickly! Check out our graphic below to see what this can look like for a small business with only 10 forms to send out.
Using the Wrong Form Type
Using a Form 1099-NEC for Employees
Form 1099-NEC is used to report certain payments to non-employees. A non-employee is defined as someone who is not employed by your company, such as independent contractors, freelancers, or outsourcing companies.
Employees receive Form W-2, Wage and Tax Statement, for their wages and salaries received during the course of their employment.
Using a Form 1099-MISC for Nonemployee Compensation
Nonemployee Compensation amounts used to be found on Form 1099-MISC. However, the IRS re-introduced Form 1099-MISC in 2020 and moved nonemployee compensation amounts to its own form.
Download our Form 1099-MISC vs Form 1099-NEC Comparison Guide to learn more about the differences of these form types.
Leaving Out Tax Identification Numbers
If you fail to provide a taxpayer identification number (TIN) on your submitted 1099-NEC form, the reported taxpayer could be subject to backup withholding. You can request the recipient’s TIN using a W-9 form.
The best fix for TIN validation issues is to catch them before you submit your filings to the IRS. In addition to the signed W-9 form, you can utilize tools like TINCorrect to double-check that the information provided is corroborated with the IRS. TINCorrect can also be used to verify payer information.
Missing and incorrect TINs are among the most common errors for Form 1099-NEC and most other form types.
Using the Wrong Year for the Forms
As with all tax reporting forms, you should make sure you are completing the 1099-NEC forms for the correct tax year, which is the year the payments were made; NOT the year in which you are preparing the forms.
Not Using Approved Forms
There are several ways to acquire approved 1099-NEC paper forms for filing. You cannot simply download the Form 1099-NEC from the IRS form hub, copy, print, and send it. Copy A, which is sent to the IRS, uses a special red ink that cannot be duplicated by a copy machine.
You can order or purchase paper forms from the IRS directly, or you can use tax software, such as BoomTax, to transmit electronically to the IRS and send recipient copies via electronic delivery or paper mail.
Failing to Include a Summary Form
Form 1096 is the compilation report for paper Form 1099 Series reporting and other information returns. An individual 1096 compilation is required for each type of information return you are filing. For example, if you are filing 1099-NEC and 1099-R forms, you will need to generate one 1096 for the 1099-NEC forms and one 1096 for the 1099-R forms.
Making General Errors for Form 1099-NEC
Completing the 1099-NEC forms on your own could result in simple errors such as using ink that is too light, forgetting decimal points, inserting font that is too large or too small, or misformatting data such as the payee name. These errors for Form 1099-NEC are more common than you’d think. Using tax software such as BoomTax could help avoid or minimize such simple errors.
After you’ve double-checked your filings for these common errors for Form 1099-NEC, you should be good to submit your filing to the IRS and any applicable states.
Once you’ve submitted these forms to the IRS either electronically or via mail and have received their “Accepted” status, then your filing obligation has been satisfied.
Lastly, always be sure to check the deadlines well in advance! This helps to ensure that you’ll have everything completed in a timely manner.
BoomTax, The Boom Post, and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors prior to engaging in any transaction.