Correction Deadline Approaching

A key deadline is looming for corrections of 1099s to avoid penalty. That deadline is August 1. Let’s examine.

Late-Filing Penalties

The IRS can assess penalties against you for filing a 1099 with incorrect information on it. This is true even if you filed the original form on time. This is because you’re required to file a complete and accurate return by the due date. A return with errors or missing information is not “complete and accurate,” so the IRS could penalize you. The amount of the penalty varies depending on how long after the due date it takes you to get a “complete and accurate” form to the IRS.

August 1 Deadline

If you submit corrections by August 1 and the number of forms you’re correcting is the GREATER OF:

• 10, or
• 0.5% of the number of forms you originally filed, then
• There is no penalty — if you correct your mistakes by August 1.

This can, of course, be hard to wrap your head around. Put another way, filers always get 10 freebies. If you’re a big filer, you get more than ten.

For example, say your organization files 10,000 forms. You could have errors on up to 50 forms (10,000 x .005) without penalty, as long as you file corrections by August 1.

If you only filed 6 forms, you could have errors on all 6 forms with no penalty, as long as you fix all 6 of them by August 1.

No Correction Needed

No correction is required (and there is no penalty) for the following types of errors:

• Wrong first names;
• Wrong addresses;
• De minimus dollar amounts, no more than $25 for backup withholding and no more than $100 for other amounts.*

*-If the other party, such as your contractor, requests a correction via the proper channels, then you ARE required to correct in this situation.

Correction Required

These types of errors do require corrections, and can generate penalties:

• Wrong last names or business names;
• Wrong taxpayer identification numbers;
• Dollar amounts that are not de minimus;
• Used they wrong form or put things in the wrong box.

Use the Same System

You must file corrections in the same manner in which you filed the original form, including the same e-file system. For example, if you filed the original form(s) in IRIS, you must correct the form(s) in IRIS. 

While most readers are no longer paper filing, if you did file on paper and now need to correct, then you must file your corrections on paper. 

Corrections After August 1

I still recommend correcting even if you miss the August 1 deadline. After August 1, you should still correct errors, but you might be penalized. However, there are different degrees of penalties. 

Right now, the penalty after August 1 is $340 per return. But if you willfully choose not to correct, then you are in “intentional disregard” territory, where the penalty is the larger of $680 per form or 10% of the dollar amount shown on the form. Much better to correct and minimize the penalty than to not correct and then face the IRS’s wrath if they find out you didn’t correct when you knew about a mistake.

FIRE vs. IRIS

In another side note: if you’ve been a FIRE user, you’re no doubt aware that FIRE is shutting down at the end of this year. What if you discover an error down the road that you need to fix? The IRS has said IRIS will be the only system available in 2027, including for corrections. How this will work for FIRE users has not been explained, yet.

Just One More Thing — August 1 vs. July 31

We have said that August 1 is the key date for filing corrections. This goes against most things in the tax world, where deadlines are the “end of the month” or “15th day” of a month. 

The deadline with what we’ve talked about in this article is not July 31 — it is August 1.