If you receive income from a source other than earned wages or salaries, you may receive a Form 1099-MISC, Miscellaneous Income.Generally, the income on this form is subject to federal income tax and state income tax. The IRS requires those that pay miscellaneous income in the course of their trade or business to issue Form 1099-MISC to their payees and requires the payees to include these payments on their tax returns.
Penalties for not issuing Form 1099-MISC
- $30 per information return if you correctly file within 30 days of the due date (by March 30 if the due date is February 28). The maximum penalty is $250,000 per year ($75,000 for small businesses).
- $60 per information return if you correctly file more than 30 days after the due date but by August 1; maximum penalty $500,000 per year ($200,000 for small businesses).
- $100 per information return if you file after August 1 or you do not file required information returns. In this case the maximum penalty is $1,500,000 per year ($500,000 for small businesses)
Exceptions to the penalty
The following are exceptions to the failure to file penalty.
- The penalty will not apply to any failure where you can furnish a reasonable cause to prove that it was not a willful neglect. In other words, you must be able to show that your failure was due to an event beyond your control or due to significant mitigating factors. You must also be able to show that you acted in a responsible manner
and took steps to avoid the failure.
- An insignificant error or omission is not considered a failure to include correct information. An insignificant error or omission does not stop the IRS from processing the return, from correlating the information required to be shown on the return with the information shown on the payee's tax return, or from putting the return to its actual use. Errors and omissions that are not considered as in significant are those that are related to
(a) a TIN, (b) a payee's surname, and (c) any money amount.
- Deminimis rule for corrections. Even though you cannot show reasonable cause, the penalty for failure to file correct information returns will not apply to a certain number of returns if you:
- a. Filed those information returns,
- b. Either failed to include all the information required on a return or included incorrect information, and
- c. Filed corrections by August 1.
Intentional disregard of filing requirements. If any failure to file a correct information return is due to intentional disregard of the filing or correct information requirements, the penalty is at least $250 per information return with no maximum penalty