1099 Tax Software Blog

Not every Form 1099 submitted to the IRS is correct, and there are many types of errors that can creep into this form, especially if you issue many 1099s each year.  There are different processes for correcting and amending a 1099, depending on whether you are a recipient or the one who filed the incorrect form.  Form 1099 may be filed by paper or electronically.

Steps for Recipients of an Incorrect Form 1099

Most 1099s deal with independent contractor income, using Form 1099-MISC.  If you receive multiple 1099s there is a chance of errors, so the first step is to check the 1099 as soon as your receive it against your own records.  Since February 2^nd is the deadline in 2015 to receive a 1099, you will have at least a month until the issuer must submit the form to the IRS on March 2^nd , or even later on March 31^st for those who file electronically.  Of course, some issuers may send both at the same time, but if you check the form as soon as you receive it you should be able to contact them in time to have a new, correct form sent to you.

Even if the form has been sent to the IRS, you can request a “corrected” form from the issuer.  The “corrected” box will inform the IRS that this is a new version of the one already sent.  If the issuer wont send you a new form, then you will have to handle the incorrect form yourself, and explain the discrepancy or mistake to the IRS in an attached statement.

Steps for Issuers of an Incorrect 1099

The steps for correcting a 1099 that you may have issued depend on the type of error.  The most common type of error will be incorrect money amounts listed on the form, and in this case the remedy is to simply prepare a new 1099 with the box marked “corrected”.   Correct the information and file the new form.  This is the same process to use if the name or address were entered incorrectly.

Forms that have errors in recipient tax identification numbers, or incorrect name AND address have a slightly different process for correction.  You first prepare a new 1099 marked “corrected” with the exact same information as the original return, but enter zero for payment amount.  This alerts the IRS that there was a problem.  Then prepare a new form with the correct information and submit it as though it is an original, without marking the “corrected” box.  This identifies the second form as the correct version for the IRS.

There are lots of places where you can get blank, red-ink 1099 forms. I get my tax forms from my local library.  If they don’t have the forms on hand, just ask your librarian.  They can easily attain more and quickly.

Your local post office might have the red-ink forms on hand as well but I have never had success with my local post office.

You can order the forms are free by calling the IRS at 1-800-TAX-FORM or 1-800-829-3676.  The forms are free and shipping is free and you receive the forms within a few days. Don’t forget to order form 1096 which is the summary transmittal.

You can download the 1099-MISC form here

www.irs.gov/pub/irs-pdf/f1099msc.pdf

But its important to remember that the online forms are for informational purposes only.  You can not use them to actually file a 1099 form.  The red-ink forms are scanned by the IRS.  Even if you could print the forms in a red-ink, the official forms use a special red-ink for scanning purposes.  The red-ink that your printer uses is not the same kind of red-ink that the IRS uses to create the 1099 forms.

Yes.

Copy B of a 1099 form can be printed on plain paper with black ink.  The payer could hand-write all of Copy B and send that to the recipient.

Copy A is sent to the IRS on red-ink forms.  In the publication General Instructions for Certain Information Returns, it is written

“Although handwritten forms are acceptable, they must be completely legible and accurate to avoid processing errors.”

You can fill-out Copy A by hand with black ink and block print (not cursive) and mail in. Do not enter “none” or “n/a” for a box that has no money value.  Instead leave that box blank.

Not typically.

Employees receive a W-2 form which shows the amount of wages paid to that employee as well as federal income tax withheld.

1099 forms are issued to independent contractors. A homeowner who hires a painter to paint their house for a $1,000 has to issue a 1099-MISC form to that contractor for miscellaneous income of $600 or more.  If the painter charged less than $600, the homeowner would not have to report it to the IRS.

W-2 forms typically show that an employer has withheld federal tax, social security, medicare and so forth while a 1099 form typically does not show federal income tax withheld (it might, but typically it doesn’t).  An employee is not likely to receive a W-2 form from an employer as well as a 1099 form.  I can’t think of any cases where a situation like this would arise.

No.

1099 forms used by payers to report payments made to a taxpayer (or recipient).  The most popular 1099 form is the 1099-MISC which is used to report payments of $600 or more that were paid by the payer to a recipient.

Schedule C, which is sent with Form 1040, is used to report self-employment income and calculate taxable profit.

Lets consider an example.  I hire someone to paint my house.  I, the homeowner, am the payer.  The painter is the recipient.  Lets say the painter charges $5,000 to paint my house and the paint cost $500.  The homeowner or payer sends  the painter Copy B of Form 1099-MISC at the end of the year reporting the $5,000 payment.  The homeowner also sends Copy A of Form 1099-MISC to the IRS.  The painter fills out Schedule C showing the $5,000 they were paid as business income and then deducts the $500 in paint cost as a business expense.  The difference of $4,500 is painter income.

I hope this helps.  E-mail any 1099 question you might have.

There exists a 1-step and a 2-step corrections which depends on the nature of the error.

It is important to first differentiate between a correction and omission.  If you submitted a file and it is processed by IRS/ECC-MTB, and you later discover that certain information returns were omitted or left out from the original file, then you need to create a separate file with the omitted returns and resubmit.  If you submitted a file and it was processed by IRS/ECC-MTB, and you later realize that the file has erroneous, then you need to file a correction of just those records.

If the dollar amounts or address are incorrect and/or a return was filed when one should not have been filed, the correction is a one-step process. Simply prepare a new information return and enter an “X” in the Corrected box at the top of the form. Enter the payer, recipient and account number information exactly as it appeared on the original incorrect return. Enter all correct money amounts in the correct boxes as they should have appeared on the original return and enter the recipient’s correct address. If a return should not have been filed, enter “0” (zero) for all dollar amounts. Submit the corrected returns with an Annual Summary and Transmittal of U.S. Information Returns (Form 1096).

If the recipient’s identification number was incorrect or missing when originally filed or the recipient’s name was wrong, correcting these errors is a two-step process. First, prepare a new information return with the payer, recipient and account number information exactly as it appeared on the original incorrect return and enter “0” (zero) for all the dollar amounts. Enter an “X” in the Corrected box at the top of the form. The second step is to prepare another new information return with all the correct information. DO NOT enter an “X” in the Corrected box on this return. Submit both returns to the appropriate service center accompanied by a completed Form 1096. Enter the words “Filed to Correct TIN, Name and/or Address” in the bottom margin of the form.

If the original information return was filed using the wrong type of return, follow the two-step procedure above with one exception. Enter the words “Filed to Correct Document Type” in the bottom margin of the Form 1096.

IRS Form 1099-C is used by creditors (such as the federal government, banks or other financial institutions, credit card companies, or credit unions) to report debts that are cancelled to debtors that exceed $600.

The debtor is required to include this amount as income. If the debtor had a debt written off and did not receive a 1099-C form, it is likely that the form was still reported to the IRS, and the creditor should be notified.

Not every type of forgiven debt is considered to be taxable by the IRS.  Although a 1099-C form is still required to be submitted to the IRS by creditors for all debts written off that exceed $600, the debtor in some situations is not required to report the cancelled debt as income.

For example, the Mortgage Forgiveness Debt Relief Act of 2007 allows certain exemptions for reporting forgiven debt relating to foreclosed homes.  If the cancelled debt was intended to be a gift, the debtor is not required to report it as income.  Any debt that was discharged in a Chapter 11 bankruptcy would be excluded from reporting requirements.  If you are insolvent, or if your debts exceed the value of your assets before the creditor agreed to write off your debt, you are not required to report that cancelled debt as income on your tax return.

1099-C forms are required to be submitted to the debtor by January 31.  The deadline for paper filing to the IRS is typically the end of February.  If you decide to efile, you have an additional month to submit the data; the deadline for efiling is typing the end of March.  You can request an 30-day extension online taking the due date to the end of April.

1099-C software at 1099fire.com creates original, replacement and corrected files in the format required by the IRS for electronic transmission. The system is updated each year to reflect the format changes that are made by the IRS.

You can file electronically whether you have just one information return or millions.  The IRS encourages everyone to file electronically and requires businesses with more than 250 information returns to electronically file.

Information returns are documents that record payments by individuals, estates, corporations, and trusts to any other party.  There are over 30 types of information returns that are required by the Internal Revenue Service to report transactions.  The IRS requires that information returns are sent to both the payment recipient and the IRS.  Payment recipients require a copy of information returns to calculate their own taxes and also to match the IRS’s record of their income.  Most information returns must be submitted to the payment recipient by the end of January and to the IRS by the end of February.  A few other types of information returns have different deadlines.

Information returns are a continually changing sector of the tax industry because of the complex nature and variety of transactions in business.  There are dozens of types of payments that should be reported by information returns including wages, severance pay, rents, gambling winnings, annuities, royalties, and many more.  The minimum amount that requires reporting varies depending on the type of payment.  For instance, for most but not all types of 1099-MISC payments, the minimum amount that must be reported is $600 or more.  However, for interest payments, which are reported with the 1099-INT form, any income above $10 requires reporting to the IRS.

Businesses and individuals have recently become more scrutinized by the IRS for not filing information returns.  Because of information returns being purposely miscalculated or not reported, there is a substantial tax gap – the difference  between taxes that are actually paid and should be paid – that is over $300 billion per year (as estimated in 2005 by the IRS).

The IRS recovered approximately $50 billion of that unreported income, leaving $250 billion more that could potentially be recovered.  Thus, the IRS has every incentive to penalize and audit businesses and individuals that do not correctly report their payments with information returns.  The IRS has openly stated that they are seeking to regulate information returns more because of this gigantic tax gap. In the future, more laws will likely be passed that will penalize late or unreported information returns

The two most familiar types of information returns are the 1099 and W-2 form.  The 1099 form is used to report the earnings of contractors while the W-2 form is used to report the earnings of employees.    Although it is sometimes unclear, it is important for both businesses and contractors to know the difference between an employee and contractor for tax purposes. This is because the difference affects tax withholdings and other tax calculations.  If for any reason the difference is unclear, then IRS Form SS-8 can be used to differentiate between the two.  A business, employee, or contractor can fill out the form and send it to the IRS, and they will officially determine the classification of the worker.

You can download any 1099 tax form from the IRS website.  This first page of the form goes out of the way to say

“Do not file copy A downloaded from this website. The official printed version of this IRS form is scannable, but the online version of it, printed from this website, is not.  A penalty may be imposed for filing forms that can’t be scanned.”

There are a few key points to take from this paragraph:

1. Copy A is a red-ink form. It is a special red-ink.  If you try to print Copy A with store bought red-ink, its not the same type of red-ink that the IRS uses to print out the 1099 forms. The IRS is asking you to not print Copy A and try to submit because store-bought red-ink forms will not scan correctly.

2. You can print Copy B or C to plain paper with black ink.  Copy B and C is the payee and payer copies.  You don’t even have to print and mail Copy B to the recipient.  You can convert to PDF and email or just print it out and hand the form to the recipient.

Form W-2 is different.  While Form W-2 is developed by the IRS, you paper or electronically file with the Social Security Administration (SSA).  SSA developed substitute Copy A forms for the W-2.  Software developers will receive a PDF of the substitute W-2, W-3, W-2C and W-3C forms in June or July.  Then can build those substitute forms into their software application and then mail the forms to SSA for review.  SSA will test to see if the forms will align with their scanners.  If they do, then that software developer will receive a letter of approval letting them know that their substitute forms can be read by SSA scanner equipment.  You receive on letter of approval for the W-2, W-3 forms and another for the W-2C, W-3C forms.

An employer can print Copy A of a substitute Form W-2 on plain paper with black ink.  Its a great feature and service offered by SSA.

There is a tremendous level of comfort in filing 1099 forms by paper. Especially if you are submitting just a few 1099 tax forms per year.

My accountant is probably 80 plus years old (I never asked him his exact age). Every year when I file my taxes, I have one 1099-MISC tax form that needs to be filled out and submitted. My accountant fills out IRS Form 1099-MISC by hand with an ordinary pen and hands it to me to mail.

There were 2-questions I investigated and write about below.

Can I submit handwritten 1099 forms to the IRS?

Yes.  General Instructions for Certain Information Returns can be found on the internet. If you search for Paper Document Reporting you can read:

“Although handwritten forms are acceptable, they must be completely legible and accurate to avoid processing errors.”

Use black ink, block print and not script characters. The general instructions also state that if you have no data for a particular box to just leave it blank. Do not enter 0 or “none” if you have no money value.

Send the 1099 form along with the 1096 form as separate forms. Do not use staples on any of the forms.

Where to mail paper information returns?

If your principal business or legal residence is located in:

Alabama, Arizona, Arkansas, Connecticut, Delaware, Florida, Georgia, Kentucky, Louisiana, Maine, Massachusetts, Mississippi, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, Texas, Vermont, Virginia or West Virginia, then you mail your paper information returns to Department of the Treasury, Internal Revenue Service Center, Austin, TX 73301.

If your principal business or legal residence is located in:

Alaska, California, Colorado, District of Columbia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Maryland, Michigan, Minnesota, Missouri, Montana, Nebraska, Nevada, North Dakota, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Utah, Washington, Wisconsin or Wyoming, then you mail your paper information returns to Department of the Treasury, Internal Revenue Service Center, Kansas City, MO 64999.

And if your legal residence or principal place of business is outside the United States, file with the Department of the Treasury, Internal Revenue Service Center, Austin, TX 73301.

Due Dates

Copy A of 1099 forms typically must be postmarked and mailed by the end of February.  If you file electronically, you get an extra month of time to file.  Also when filing electronically, you can automatically apply for an receive a one month extension.

I hope this helps when paper filing this year.