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Penalties for Not Filing a 1099-Misc IRS Form

Updated for Tax Year 2015


OVERVIEW

One of the most common reasons for receiving a 1099-MISC is performing work as an independent contractor.


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.

1099misc penalty

Form 1099-MISC

Several types of income can be reported on Form 1099-MISC, including nonemployee compensation, rent, royalties and fishing boat proceeds. One of the most common reasons for receiving a 1099-MISC is performing work as an independent contractor.

If you have the payer withhold federal income tax from your payments, the payer will report the withholding in Box 4. State income tax withholding is reported in Box 16.

Penalties for not issuing Form 1099-MISC

People and companies that make payments of miscellaneous income to individuals must give the payee Form 1099-MISC by the end (in most cases) of February of the year following the tax year in which the income was paid. However, if the payment is for non-employee compensation to be shown in box 7 of Form 1099-MISC, then it is required to be filed by January 31st. For example, if you received miscellaneous income in 2015 that is non-employee compensation, the paying institution or individual must issue Form 1099-MISC by January 31, 2016. If the institution fails to do so, the penalty against the company varies from $30 to $100 per form ($500,000 maximum per year), depending on how long past the deadline the company issues the form. If a company intentionally disregards the requirement to provide a correct payee statement, it is subject to a minimum penalty of $250 per statement, with no maximum.

Penalties for not reporting Form 1099-MISC

If you receive a Form 1099-MISC that reports your miscellaneous income and you don’t include the income on your tax return, you may also be subject to a penalty. Failing to report income may cause your return to understate your tax liability. If this occurs, the IRS may impose an accuracy-related penalty that is equal to 20 percent of your underpayment. As an example, if the failure to include your miscellaneous income caused you to understate your tax liability by $500, your penalty would be $100 ($500 x .20 = $100).

How to report Form 1099-MISC on your return

To avoid an underpayment penalty, be sure to include your miscellaneous income on your Form 1040. If your income is nonemployee compensation, you’ll need to complete, in most cases, Schedule C, Profit or Loss From Business, and then transfer the net earnings to Line 12. For rents or royalties, complete Schedule E, Supplemental Income or Loss, and then enter the net income on Line 17 of Form 1040.

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The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.


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