Example: A business filer is required to file 300 1099 forms electronically, but instead of e-filing sends the 1099 forms to the IRS on paper by the paper filing due date (end of February) . What is the penalty in this case? The penalty in this case is applied only to 50 forms 1099. The first 250 returns filed on paper are not subject to the penalty for failure to file electronically. So the penalty will be $100 X 50 = $ 5,000.

Penalty: If you are required to file electronically but fail to do so, and you do not have an approved waiver, you may be subject to a penalty of $100 per return for failure to file electronically unless you establish reasonable cause. If you fail to file a correct 1099 information return by the due date and you cannot show reasonable cause, you may be subject to a penalty. The penalty applies if you fail to file timely, you fail to include all information required to be shown on a 1099 return, or you include incorrect information on a return. The 1099 penalty also applies if you file on paper when you were required to file 1099s electronically, you report an incorrect TIN (Tax Identification Number) or fail to report a TIN, or you fail to file paper 1099 forms that are machine readable. The amount of the 1099 deadline penalty is based on when you file the correct information return.  You can file IRS Form 8809 to request an extension of time to file 1099 forms. The penalty is:

  • $30 per information return if you correctly file within 30 days (by March 30 if the due date is March 2); maximum penalty $75,000 per year ($25,000 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 $150,000 per year ($50,000 for small businesses).
  • $100 per information return if you file after August 1 or you do not file required information returns; maximum penalty $250,000 per year ($100,000 for small businesses). 
  • The IRS has created a maze of penalties dependent upon a variety of factors. Click here for the IRS Webpage. I have a basic rule of thumb. 

Recommended Steps:

  1. ​Review vendors that 1099s to be issued no later than December 31 of each year.
  2. Make sure your accounting system can electronically file 1099s. If it can not buy a program such as W2Mate.
  3. ​Have all vendor transactions and payments entered into your accounting by January 15.
  4. Run a preliminary 1099 report by January 15.
  5. Review the report with your accountant to ensure it is complete. 
  6. ​Mail all 1099s by January 31.
  7. Provide three weeks for persons you sent a 1099 to raise a dispute.
  8. Electronically file 1099s with the IRS on February 28 even if you have the right to mail in the 1099s.​​
 
Form 1099: Failure to Timely File Can Result in Harsh and Excessive Penalties. Do Not Get Caught in This IRS Trap.

Background: For many years, businesses have been required to report various payments on different versions of Form 1099. For instance, when a business pays $600 or more during a calendar year to an independent contractor for services, the business must issue the contractor a Form 1099-MISC that reports the amount paid that year. The business must also furnish a copy of the Form 1099-MISC to the IRS. Form 1099 is required to be filed for each person to whom you have paid during the year at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest; and/or at least $600 in:

  • rents;
  • services performed by someone who is not your employee;
  • prizes and awards;
  • other income payments;
  • medical and health care payments;
  • crop insurance proceeds;
  • cash payments for fish (or other aquatic life) you purchase from anyone engaged in the trade or business of catching fish;
  • generally, the cash paid from a notional principal contract to an individual, partnership, or estate;
  • payments to an attorney; or
  • any fishing boat proceeds,

In addition, use this form to report that you made direct sales of at least $5,000 of consumer products to a buyer for resale anywhere other than a permanent retail establishment. If a payer inadvertently fails to issue a proper Form 1099, the IRS can assess a $250 penalty. ALL 1099 filers will be subject to for incorrectly reporting tax information. H.R. 1295, (now PL 114-27), doubles the annual maximum penalty cap to $3 million for all 1099’s, and more than doubles the penalty per record from $100/record to $250/record for failure to file properly. Under the rules that currently apply, most payments to corporations are exempt from Form 1099 reporting requirements. However, there are a few exceptions. For instance, payments of $600 or more in a calendar year to an incorporated law firm must be reported on Form 1099-MISC. Under current rules, there is also generally no requirement to issue 1099s to report payments for property (such as merchandise, raw materials and equipment). You don't need to issue 1099s for payments made for personal purposes.

Mailing and Filing Deadline: The IRS deadline for mailing 1099 forms in respect to payments made in each fiscal year to your recipients is Jan. 31 of the following year. Most accounting systems have descent 1099 tracking systems. It is important you computerize your cannabis business records and let the system do the work for you. Quickbooks can track your 1099 vendor expenses and they provide forms for Form 1099 to be printed on. Public Law 114-113 requires Form 1099-MISC to be filed with the IRS on or before January 31, 2017, when you are reporting non-employee compensation payments in box 7 (this applies for BOTH paper and electronic filing). File Copy A of the 1099-MISC form with the IRS by February 28, 2017. If you file electronically, the due date is April 2, 2018. To file electronically, you must have software that generates a file according to the specifications in Pub. 1220. W2 Mate software can be used to generate the electronic filing submissions you need. If you are required to file 250 or more information returns, you must file electronically with the IRS. Electronic filing can be easily accomplished with accounting software such as Quicken and QuickBooks. You can file IRS Form 8508 in order to request a waiver from filing 1099 forms electronically.