What is Tax Form 1099?An essential component of your 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 forms and 1099 forms. At its most basic, the difference between W-2 and 1099 forms is this:
What’s the difference between W2 and 1099? Once you’ve determined that you’ve hired an independent contractor, or have a need to prepare a 1099 form, the correct filing of the Form 1099 is incredibly important. Here are 10 common mistakes we see clients make when filing form 1099. 1. Not filing a form when a form is needed. 2. Not filing by the due date. 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. 4. Using the wrong box on the form.
5. Not reporting a Taxpayer ID Number (TIN) or reporting an incorrect TIN. 6. Using incorrect information to complete the form. 7. Filing a paper return when electronic filing is required. 8.
Not sending in a Form 1096 transmittal when paper filing. 9. Not preparing machine readable forms. 10. Improper formatting of name, address, etc. Learn more about the requirements of Form 1099. It is highly unlikely that you will go through 1099 filing season and not come across one required correction, but correcting forms is easy once you understand the process. Types of 1099 ErrorsThere 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
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). Send the corrected 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 send in the originally filed forms with the correction to the IRS. Type 2 Errors
To correct Type 2 errors, you will need to file two form 1099s:
Other Items to Note in 1099 CorrectionsIf the recipient of the form has different information in their records, they will likely contact you for an explanation 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 reports 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. Need more guidance?
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