As the saying goes, “To err is human.” Mistakes happen – it’s how we respond to them that really matters. Your tax practice is no exception. If you manage 1099 filing for clients, you inevitably come up against errors.
Thankfully, with a little awareness and action, you can correct them quickly, so they don’t slow down your business.
What are the most common types of 1099 errors and how do you fix them? Let’s take a closer look:
Understanding the Two Types of 1099 Errors
Form 1099 errors fall under two categories, which in turn affect the corrections process:
Type 1
- Incorrect money amount(s), code or checkbox
- Incorrect payee name
- A return was filed that shouldn’t have been
These errors require only one return to make the corrections. When paper filing, you must:
1. Prepare a new information return
2 Enter an “X” in the "Corrected" box (and optional date) at the top of the form
3. Enter the corrected information, such as money amounts
4. Include a new 1096 with an “X” in the "Corrected" box with the filed 1099
Note: You don’t need to include the original incorrect form.
Type 2
- Missing or incorrect payee number (TIN, SSN, EIN, QI-EIN or ITIN)
- Incorrect name and/or address
- Original return filed with the wrong form (e.g., 1099-MISC to complete a 1099-DIV)
The process is a little more detailed with Type 2 errors, requiring two returns. When paper filing, you must:
1. Prepare a new information return
2. Enter an “X” in the "Corrected" box" (and optional date) at the top of the form
3. Enter the payer, recipient and account number information exactly as it appeared on the original incorrect return; however, enter “0” for all money amounts
The second stage is to report the correct information, as follows:
4. Prepare a second new information return as if it’s an original (so don’t enter an “X” in the "Corrected" box at the top of the form)
5. Make all the corrections on the form, such as the fixed TIN, name and/or address
6. Include a new 1096 (with the words “Filed to Correct TIN,” “Filed to Correct Name and Address” or “Filed to Correct Return” in the bottom margin of the form) with the filed 1099
Streamline the Entire Process with Electronic Filing (and Corrections)
Looking for an easier way to navigate 1099 corrections? If you’ve filed your clients’ 1099s electronically with a reputable service provider like eFile4Biz.com, you can skip a big chunk of this process.
For 1099 Type 1 errors (money amounts), all you do is pull up the original form online, make the correction on screen and resubmit. eFile4Biz.com will take care of the rest. This means printing and mailing a corrected 1099 to the recipient, and filing the 1099 Correction with the IRS.
Further still, you can handle Type 1 1099 corrections with eFile4Biz.com even if you filed the original with someone else. Simply create an account, add the recipient and select
“Correction Forms” from the Filing Center
Additional advantages of e-filing: If you spot an error after submitting an order but before the forms are filed with the IRS, you can make the necessary edits for a nominal fee. This early response can eliminate the need to file a 1099 Correction altogether. Plus, you’re not required to file a 1096, so that’s one less item on your to-do list.
Protect Your Valued Clients from Penalties
As you know, the deadline for filing the 1099-MISC with the IRS (if data was entered in Box 7, non-employee compensation) was bumped up to Jan. 31, 2017 – regardless of paper or electronic filing. (Previously, the e -file date was March 31).
Now, more than ever, timeliness and accuracy are essential to shield your clients from penalties. These penalties have increased for the 2016 tax-filing season:
- If you correctly file within 30 days of deadline: $50 per form ($532,000 max)
- If you correctly file after 30 days and by Aug. 1, 2017: $100 per form ($1,596,000 max)
- If you correctly file after Aug. 1, 2017: $260 per form ($3,193,000 max)
Don’t make 1099 corrections harder than they should be. Rely on the all-inclusive eFile4Biz.com for easier filing upfront – and to simplify the process for you and your clients when corrections are needed.
Richard Roddis 2
Rick Roddis is president of ComplyRight Distribution Services, a division of ComplyRight Inc., which provides cutting edge compliance products and programs for businesses. Rick began his career as an insurance underwriter, but quickly moved into sales, operations and management roles at different companies that partnered with Intuit, Staples, Office Depot, and others. In 2008, he became president of TFP Data Systems, the leading manufacturer of 1099, W-2 and ACA tax forms, envelopes and software. Over the past four years, he has been focused on transforming ComplyRight Distribution from a traditional 1099/W-2 forms manufacturer to a digital provider of Tax Solutions for businesses thru services like EFile4Biz and several other digital assets.