New Deadline and Increased Penalties for Forms 1099 and W-2

The IRS is getting stricter on filing deadlines for information returns and have increased penalties for businesses that fail to file on time. Forms such as 1099 and W-2 will be required to be filed by January 31 or subject to a hefty penalty.

In the past, the IRS may have been more relaxed in doling out penalties for late filings of information returns and payee statements, but next year they have compressed the deadline and will be active in distributing the penalty that doubled per record last year. As we near year-end, now is the time to start planning to avoid any unnecessary fees.

Increased Penalties

Effective January 1, 2016, penalties more than doubled through the Trade Preferences Extension Act of 2015 for late filings and failure to file Forms 1099 and W-2. Penalties can range from $50 per return to $260 per return, based on when the correct information is filed.

To be in compliance, businesses must file the forms by the due date, provide a copy of the form to the recipient and provide all of the required, correct information.

According to the IRS, the following outlines applicable penalties:

• $50 per information return if you correctly file within 30 days (by March 30 if the due date is February 28); maximum penalty $532,000 per year ($186,000 for small businesses, defined as the average annual gross receipts of $5 million or less for the three most recent tax years).
• $100 per information return if you correctly file more than 30 days after the due date but by August 1; maximum penalty $1,596,500 per year ($532,000 for small businesses).
• $260 per information return if you file after August 1 or you do not file required information returns; maximum penalty $3,193,000 per year ($1,064,000 for small businesses).

Please note: Penalties apply to both the IRS copy and the payee copy, for a potential total of $500 per form and a maximum penalty of $6,000,000 per year. Intentionally failing to file results in a penalty of $1,000 per form and no annual maximum amount.

New Deadline in 2017 for 1099 and W-2 Filing

Businesses will not only be on the hook for penalties for late filing, but the deadline has also been moved up to January 31 for Forms 1099 and W-2.

Form 1099-MISC: If non-employee compensation is reported in box 7 (common for most filers), Form 1099-MISC will be due to the IRS by the new deadline; otherwise, the deadline is February 28 for paper filing and March 31 for electronic filing.

Forms W-2 and W-3: Although businesses were already required to issue W-2s to their employees by January 31, the Consolidated Appropriations Act of 2016 now applies the same filing deadline to submit Forms W-2 and W-3 to the IRS and Social Security Administration. This deadline is for both paper forms and electronic filing. Previously, paper filing for these forms was due on February 28 and electronic filing was due on March 31.

If you have any questions to the new filing deadlines and increased late-filing penalties, please contact your advisor at (805) 963-7811.