Congress Increases 1099 & Other Informational Return Penalties
Author: Steve Gresh
On June 29, 2015, President Obama signed the Trade Preferences Extension Act of 2015. The act includes a provision that substantially increases penalties associated with late or erroneous filing of informational returns and payee statements. This includes 1099s--one of the more common informational returns taxpayers file—and 1095s, newly required for certain taxpayers under the Affordable Care Act.
Taxpayers may incur penalties for failing to file, excluding required information or including incorrect information on informational returns or payee statements. The new law increases this penalty to $250 from $100 per informational return. The maximum calendar-year limitation for these penalties increases to $3 million from $1.5 million for both informational returns and payee statements. This subjects taxpayers to a combined maximum penalty of $6 million.
A taxpayer who fails to file or incorrectly files an informational return or payee statement can reduce the penalty. If the informational return is correctly filed within 30 days of the original due date, the penalty assessed is reduced to $50 per return, and the annual limitation is reduced to $500,000 (a combined $1 million). If the taxpayer misses the 30-day deadline but files a corrected return or statement on or before August 1 of the calendar year in which the filing is due, the penalty decreases to $100 per return and the annual limitation decreases to $1.5 million for both informational returns and payee statements.
Conversely, taxpayers intentionally disregarding the filing laws face increased penalties. The base penalty per return increases from $250 to $500, and the maximum dollar limitation for the calendar year is eliminated.
Reduced Penalties for Small Taxpayers
Taxpayers with less than $5 million in average annual gross receipts over the three most recent taxable years ending before the current year are subject to a reduced maximum penalty. While still doubling the penalties assessed prior to the act, small taxpayers are limited to the following maximum penalties:
- Failure to file and erroneous filing – $1 million
- Correction within 30 days – $175,000
- Correction by August 1 – $500,000
Due to these penalty increases, it’s crucial that businesses and other taxpayers evaluate whether they are required to file informational returns. One commonly overlooked informational return is the 1099-MISC. With a few exceptions, total payments of $600 or more to any payee for the calendar year must be reported on a 1099-MISC. A copy of the form is due to the IRS by February 28 if paper filing or March 31 if filing electronically.
If you have any questions regarding informational returns or the increased penalties, contact your BKD advisor.