How to Correct 1099 Mistakes
I recently chatted with HR Solutions Manager Jaime Lizotte, who works for ComplyRight, where the mission is to free employers from the burden of tracking and complying with the complex web of federal, state and local employment. Throughout the podcast, I asked Jaime some questions that I feel other people need to know the answers to.
First, can 1099s be corrected if a mistake is made? We’re human, things happen. Jaime confirmed: absolutely.
There are two types of 1099 corrections, referred to as Type 1 and Type 2. The former requires only one form to be filed. This may be done if you do something like file an incorrect money amount or a return that should not have been filed.
The process is simple. You fill out another form (the one you used originally), fix the incorrect information and check the “corrected” box on the top. At the end, include a 1096 Annual Summary and Transmittal form, also with the “corrected” box marked. Send it to the recipient, and then file it with the IRS again.
The steps are the same as the initial submission, but this time, the information is right.
Type 2 corrections, Jaime explained, are a little more detailed. They require more than one form. They are used for mistakes such missing or incorrect pay numbers, or Tax Payer Identification Numbers, and an incorrect Social Security number. An incorrect name or address or an incorrect originally submitted form (if it was a 1099-MISC form when it should’ve been a 1099-DIV form, for instance) are Type 2 cases.
In this instance, you would file the same form with the “corrected” box checked off. The payer and recipient information are identical to the original, but you zero out the amount. That will indicate that you’re zeroing out the original form. Then, fill out a new form with the correct information in place. Send it to the recipient and the IRS.
Now, let’s talk mistake prevention. At Powerful Accounting, one security measure I employ is that when we’re ready to start e-filing 1099s, we make the business owners sign off on the lists and authorize that information is correct.
My advice for you is to double-check the information before you submit anything, particularly in situations where you would be found responsible for the necessary corrections. As the owner of my business, I don’t want to absorb costs because of somebody else’s mistakes or because of something I missed.
Jaime agreed. Verify, verify, verify. You will receive the brunt of an unhappy recipient. efile4biz.com is a good precautionary resource, providing a way for the user to run a summary report and confirm numbers quickly.
As the practitioners, there are opportunities for error. If you accidentally send the wrong Social Security number, you’ve just created the risk of identity fraud. I highly recommend handling these records electronically. Not only do you have a reliable log, but fixes are much easier.
I also called on Jaime to name some common mistakes that people make with their 1099s. She cited incorrect monetary amounts, incorrect name or address and filing the wrong form as popular issues.
At the end of the 1099 filing season, the IRS sends a notification to business owners if there’s any difference in what was reported and what they have on file. The client often gets freaked out when they are alerted. In some cases, it’s an address mishap and it’s not a big deal, but it could be a tax ID number.
That’s why a form like the W-9 is so important to have on file: to cover yourself. We require electronic records at Powerful Accounting. I’m not in business to break even. And if a small business owner is preparing their own 1099, that’s a service you can jump in on. Just because a person is great at running a business, they aren’t necessarily great at accounting. As I’ve said, have that conversation with clients. Shield them from potential fraud issues.
Jaime reminded listeners that return and reporting season is very fast-paced. Be on top of it. Use a site like efile4biz, or hire somebody who is familiar with the process. The 1099 and W-2 forms are no longer eligible for automatic extension—you need a valid reason, and you need to apply. Form 8809 must be filed for an extension.
Taking hits from penalties could make or break a business, and the IRS does not have a lot of patience. They’ll fine you. Let us help you avoid that. Shout out to Jaime and the rest of ComplyRight for being allies in the fight against fraud.
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Dawn is a Certified Public Accountant, Certified Fraud Examiner, and CEO of Powerful Accounting, LLC. Powerful Accounting is a nationally recognized accounting, tax, forensic and fraud, IRS and State Agency audit professionals as well as a QuickBooks consulting firm. Recently, Powerful Accounting has partnered with Anderson, Brolin & Coba...