In general, there are two types of penalties associated with 1099-MISC forms. The first concerns those who are required to issue the forms; the second concerns those who receive the forms. Let’s take a look at both.
For those who are required to send out 1099-MISC forms, there are penalties for not issuing Form 1099-MISC. It does not matter if you are a company or a person, if you are required to give someone who worked for you a Form 1099-MISC, you must do to. Generally, you have to give it to the person by the end of February of the year that follows the tax year that the income was paid.
In the event the Form 1099-MISC is not sent out on time, the company may be fined a penalty that can range from $30 to $100 (for each form), with a penalty maximum of $500,000 per year. This will depend on just how overdue the company has missed the deadline in issuing the form. Keep in mind, that if someone intentionally ignores the legal requirement to provide a timely and correct Form 1099-MISC statement, that company may be subject to a $250 minimum penalty per statement, and there is no maximum limit associated with in this case.
Some taxpayers wonder if they should be getting a Form 1099-MISC. The most common reason for someone to send you a Form 1099-MISC is that you did work for that person or company as an independent contractor. Do not confuse this with normal earned wages or salaries which you may have received from a job in which taxes were withheld from you by the employer.
The pay that is reported on your 1099-MISC is normally subject to both federal income tax and as well as state income tax. It is the responsibility of the one who paid you those monies to send you a copies of your Form 1099-MISC. You must then report these earnings on your tax returns.
What Income Can Go On Form 1099-MISC?
The answer is there are many types of income which can be reported using the 1099-MISC. This might include rents, non-employee compensation, most types of royalties and charter bus or even fishing boat proceeds. However, most often, the reason for getting a Form 1099-MISC for someone is that you worked as an independent contractor at some point during the year. An independent contractor is NOT considered an employee and therefore the company or person you worked for is not responsible for withholding taxes on you.
If you do not include the 1099-MISC income on your tax return, you may be penalized. In some cases, such as you underpay your tax, the IRS can charge you as much as 20 percent of the underpayment. For instance, if you underpaid (because you ignored your Form 1099-MISC, by, say, $500, the penalty could be $100 (which is $500 x .20 = $100). You can avoid these problems by making sure you include all of your miscellaneous income. If you are not sure about any of this, contact a professional for advice.