What Happens When Someone Forgets to File a 1099 on Their Tax Return?

(May 2024)

What-Happens-When-Someone-Forgets-to-File-a-1099-on-Their-Tax-Return

In This Article

If you receive income from sources other than your employer, such as freelance work, interest, dividends, or rent, expect to get a 1099 form in the mail. A 1099 form is a document that reports your earned amount of income from various sources to the IRS and to you. It is important to report this income on your tax return, as it affects your taxable income and your tax liability. There are different types of 1099 forms, depending on the received type of income. For example, 1099-MISC is for miscellaneous income, 1099-INT is for interest income, and 1099-DIV is for dividend income.

Expect a 1099 form if you earn more than a certain threshold from a payer, which varies depending on the type of income. For instance, you receive a 1099-MISC if you earn more than $600 from a payer, or a 1099-INT if you earn more than $10 in interest from a payer. However, even if you do not receive a 1099 form, you are still responsible for reporting the income on your tax return.

However, just imagine you forget to do so, or you do not receive the form from the payer–in other words, you do not file Form 1099 on your tax return—In that case, what happens? Read on, to find out!

Consequences of neglecting to include 1099 in one’s tax filing- Things to know

1. The IRS Catches Your Unreported 1099 Income and Sends You a Notice
2. You Deal With the Notice From the IRS
3. File an Amended Tax if you Realize Your Mistake Before the IRS Does

1. The IRS Catches Your Unreported 1099 Income and Sends You a Notice

When you overlook filing a 1099 on your tax return, the IRS finds out about your unreported 1099 income and gives you a notification.

The IRS has a system to detect unreported 1099 income by comparing the information it receives from payers with the information you report on your tax return. Payers are required to send a copy of the 1099 forms they issue to you to the IRS as well.

The IRS then uses a computerized program called the Automated Underreported Program (AUP) to match the 1099 forms with the income you declare on your Form 1040. If the IRS finds a mismatch between the 1099 income and the reported income, it sends you a CP2000 notice. This notice informs you of the income that the IRS has on file for you, and the additional tax, penalties, and interest that you owe.

You have the opportunity to respond to the notice and either agree or disagree with the proposed changes. If you do not respond to the notice within the given time frame, the IRS will assume that you agree and will send you a bill for the amount due.

The penalties and interest for missing a 1099 filing depend on several factors, such as the amount of income, the type of income, and how long you are late. Generally, the IRS imposes a late payment penalty of 0.5% per month or partial month that late taxes remain unpaid, up to a maximum of 25% of the tax you owe. However, if the IRS determines that you intentionally disregarded the reporting requirement, the penalty is possibly 10% of the reported income on the form, with no maximum. Additionally, you will have to pay interest on the unpaid tax from the due date of the return until the date of payment.

2. You Deal With the Notice From the IRS

If you forget to include a 1099 on your tax return, you respond to the notification from the IRS.

If you receive a notice from the IRS about missing 1099 income, do not panic. The notice is not a bill or an audit, but a proposal to adjust your tax return based on the information the IRS has. Take the following steps to deal with the notice:

  • Review the notice carefully and compare it with your tax return and your 1099 forms. Check if the notice is correct and if you agree with the proposed changes. If you need more time to review the notice, you can request an extension of the response deadline from the IRS.
  • Verify the accuracy of the information on the notice and your 1099 forms. Sometimes, the IRS or the payer makes a mistake in reporting the 1099 income. For example, if the payer sends you a duplicate 1099 Form or the IRS misreads a digit on the form. If you find an error, contact the payer to correct the 1099 form and send a copy to the IRS and you.
  • Respond to the IRS within the deadline stated on the notice. You can either agree or disagree with the proposed changes. If you agree, sign the notice and return it to the IRS with your additional tax, penalties, and interest payment. If you disagree, send a letter to the IRS explaining why you disagree and providing any supporting documents, such as receipts, invoices, or bank statements. You can also request a conference with an IRS manager or appeal the notice to the IRS Office of Appeals.
  • Resolve the issue as soon as possible. If you do not respond to the notice or pay the amount due, the IRS will assume that you agree and will send you a bill for the amount due. If you do not pay the bill, the IRS may take further actions, such as placing a lien on your property, levying your bank account, or garnishing your wages. To avoid these consequences, try to resolve the issue as soon as possible. You may have some options to reduce or eliminate the penalties and interest, such as requesting an abatement of penalties for reasonable cause, applying for an offer in compromise, or setting up an instalment agreement with the IRS.

3. File an Amended Tax if you Realize Your Mistake Before the IRS Does

If you realize that you forgot to include 1099 income on your original tax return,  file an amended tax return as soon as possible. An amended tax return is a way to correct errors or omissions on your previously filed tax return. To file an amended tax return, you need to use Form 1040-X, which is available on the IRS website or from your tax software or preparer.

Attach any supporting documents, such as your corrected 1099 forms, and explain the reason for the changes on the form. Also pay any additional tax, penalties, and interest that you owe due to the amendment.

Filing an amended tax return has some benefits, such as avoiding or reducing the penalties and interest that the IRS may charge you if they catch your mistake later. It also shows that you are acting in good faith and trying to comply with the tax laws.

However, be aware that there is a time limit for filing an amended tax return. Generally, you have three years from the date you filed your original return or two years from the date you paid the tax, whichever is later, to file an amended return. Therefore, don’t delay filing an amended return if you discover that you forgot to include 1099 income on your tax return.

Recap

Filing a 1099 form on your tax return is a crucial step to report your income from various sources and avoid any trouble with the IRS. If you forget to file a 1099, you face penalties, interest, and audits from the IRS. However, you can take some actions to deal with the situation, such as filing an amended tax return, responding to the IRS notice, or requesting an abatement of penalties.

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