Do you file 1099-miscellaneous or 1099-NEC forms? If so, you risk mixing up the forms, entering incorrect information, or using a form from the wrong tax year. And if you make a mistake on the form, you may have a corrected issue 1099.
“Mistake” is the last word you want to hear in business. But, it’s not the end of the world. Learn how to avoid 1099 errors and how to fix 1099 if you get one.
what you need to know about 1099 forms
Form 1099s are information returns that businesses use to report certain payments. There are two types of Form 1099s: Form 1099-MISC and Form 1099-NEC. Between 1982 and 2020, businesses used Form 1099-MISC for all 1099 returns. But in 2020, the IRS relaunched Form 1099-NEC.
So what’s the difference? And how can not knowing the difference lead to mistakes?
Form 1099-Miscellaneous, Miscellaneous Income, is used to report certain payments made to 1099 vendors, such as royalties and rent.,
On the other hand, Form 1099-NEC, Non-Employee Compensation, is only for reporting payments to independent contractors. This form works the same way as the W-2 form. Independent contractors can use Form 1099 – NEC to obtain the information needed to file their tax returns.
who gets 1099-MISC and NEC forms?
There are multiple copies of 1099 forms that you need to manage. Forms 1099-MISC and 1099-NEC both have five copies, each going to the same parties., Send the copies as follows:
- Copy A: IRS
- Copy 1: state tax department (if applicable)
- copy B: Contractor / Vendor
- Copy 2: Contractor / Vendor
- Copy C: Your records
When you file Forms 1099-MISC or 1099-NEC with the IRS, you must also file Form 1096, Annual Summary, and U.S. Information Return Submission. There is only one 1096. The 1096 form has a section where you have to mark the type of form to fill out.
If you are submitting both Form 1099-MISC and Form 1099-NEC, You need two separate Form 1096s (one to accompany each form).
common 1099 errors that require 1099 correction
First, you only need to issue a corrected 1099 to the IRS if you have already submitted an incorrect form to the IRS. If not, you can just undo it (which we’ll see later). And, do not send corrected returns to the IRS if you are only correcting state or local information.
so what are some of the errors that require a modified 1099? You need to know how to file a corrected 1099 if you make any of the following mistakes:
- use the wrong type of return form (for example, a 1099-miscellaneous form when you should have used the 1099-NEC form)
- enter incorrect amounts of money or codes
- check the wrong box
- file a return when you shouldn’t have
- make a mistake with the taxpayer identification number (TIN) or beneficiary name
keep in mind that other errors may result in penalties, but do not require you to file a corrected Form 1099, such as not filing by the deadline.
As for a corrected 1099 deadline, the IRS does not set a specific date. According to the IRS, you must generally submit corrected returns for returns filed within the last three calendar years.
What if you make a mistake entering your name, TIN, or both?
If you made a mistake in declaring your name, NIF, or both, you do not need to file a corrected 1099. This applies to both Paper and electronic corrections.
Instead, write a letter to the IRS, include your:
- name and address
- Type of error
- taxation year
- TIN
- Transmitter check code
- Declaration type
- Number of beneficiaries
- production method
- If federal income tax was withheld
Send the letter to:
Internal Revenue Service
Information Returns Branch
230 mural drive, mail stop 4360
Kearneysville, WV 25430
how to issue a corrected 1099 (paper)
unlike the w-2 correction form, the w-2c form, there is no separate 1099 correction form. The 1099 correction form is the same as the original form.
You must use a regular copy of Form 1099 (NEC or MISC) and check the box next to “corrected” at the top.
submit corrected 1099 forms to the IRS, contractor or supplier, and state agencies (if applicable). And, be prepared to file a corrected Form 1096 to accompany the return you are correcting. Do not include a copy of the original return that you filed incorrectly.
How you issue a 1099 correction depends on the type of error. The IRS divides errors into two categories, Type 1 and Type 2.,
Type 1 errors
If your original form contains an incorrect amount, code, or checkbox, or if you filed a return when you should not have filed it, you have made a Type 1 error.
to correct a Type 1 error, you must:
- prepare a new 1099 form
- enter an X in the “fixed” box
- include the correct information (amount of money, code, or checkbox)., Declare other information as you did in the original declaration
- prepare a new Form 1096 with corrected information (to be sent with copy A to the IRS)
- send the corrected Form 1099 to the contractor or independent seller, the IRS, and any required state tax departments
Type 2 errors
Type 2 errors occur when taxpayer-identification numbers are missing or incorrect, or when the payee name is incorrect.
You need to do the following to fix a Type 2 error. Type 2 errors are broken down into two steps, in the “fixed” box
include all correct information
prepare a new Form 1096 with the corrected information (to be sent with copy A to the IRS)
include one of the following phrases in the bottom margin of Form 1096: “filed to correct TIN,” “filed to correct name” or “filed to correct declaration”
send the corrected Form 1099 to the independent contractor or vendor, the IRS, and any required state tax departments
How to File 1099 Answer Keys Online
If you have 250 or more 1099s that you need to correct, you must file the corrected forms electronically.,
like paper returns, there are two types of errors. In e-filing, these errors are referred to as One-Transaction Correction Errors and Two-Transaction Correction Errors.
keep in mind that your e-correction process may vary if you are using software, so be sure to check with your provider for more information.
for help correcting returns electronically under the IRS’s FIRE (filing electronic information returns) process, see Publication 1220.,
How to Cancel 1099 (And When You Should)
If you have errors on a 1099 form or part of it and have not submitted it to the IRS, you can cancel. To void 1099, enter an “X” in the “VOID” box, which is next to the “CORRECTED” box.
so why would you want to cancel 1099? Undo allows you to undo a form that is printed on the same sheet of paper as the other forms (without having to redo everything).
when you cancel something, the IRS doesn’t take it into account. Simply start a new form with the correct information to compensate for the canceled one. Do not put an “X” in the “corrected” box.
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