The IRS has increased penalties again for late or non-filed 1099 or W-2’s
For the last few years, the IRS has been ratcheting up its effort to match all income from whatever source to personal tax returns. The reason is obvious. Audits are easier and income that may have been under-reported in previous years is now captured for taxes.
To accomplish this task they are putting as much pressure as they can on employers to file 1099 forms and correct W-2’s and to file them electronically within strict time tables.
And how does the IRS pressure taxpayers? Increased penalties.
Not only are penalty amounts increasing, but they are layering penalties also. In other words, you could receive multiple penalties for one incident.
You can be assessed for missing or incorrect Social security numbers or both. You can be assessed for late filing and incorrect filing where amounts don’t match and on top of that you could receive a penalty for Intentional Disregard.
Here are the new 1099 and W-2 penalties:
Example: You have 16 employees and you have been paying them on your own to save money. Most of the employees don’t care about a W-2 anyway. Maybe some of the Social security numbers are wrong. You are busy and have not had a chance to take your records to the accountant. It’s August 2 and now you file W-2’s.
The numbers are not all matching as they should. In October you get a letter from the IRS. Your penalty for late and incorrect W-2’s is $8,640. And if you don’t correct it, they add another $16,960 for Intentional Disregard.
Another reason to be diligent about Social Security numbers is, on top of IRS penalties, the State of Michigan Unemployment Penalty for incorrect SS# is $250 per quarter. The $250 per quarter penalty is added every quarter the SS# until it is corrected.
Needless to say, one screwup could cost you dearly.
The biggest problem we find is where an employee gives the employer a bad SS#. The employee only works a short time and leaves.
The employer gets a notice from IRS that SS# and name do not match.
The employer cannot find the employee anymore and now you have a $270 penalty Federal and another $250 state Unemployment penalty.
To stay out of trouble, here is what we recommend.
- Require proof of identification of all employees. A drivers license and social security card or passport.
- Photocopy or take a picture of the proof.
- Complete the I-9 and W-4 form with the employee. More about I-9 penalties here>
- Use a responsible payroll company that has been around a long time to file your W-2’s and 1099’s.
- Ask your payroll company to use e-verify to verify correct social security numbers.
- If you do a manual payroll and do not use a payroll company, get your information in early – remember the due date is January 31 each year.
- Talk to your accountant about possible 1099 forms you should be filing.