What Happens If You Don’t File Your 1099?

Form 1099 is an information return used in the U.S. tax system. It reports various types of income paid to non-employees. These forms help the Internal Revenue Service (IRS) track income and ensure tax compliance. They also provide recipients with a documented record of income received, which is necessary for accurate tax reporting.

Understanding 1099 Filing Obligations

Businesses and individuals making certain payments are required to issue Form 1099. This obligation applies to payments made in the course of a trade or business to non-employees, independent contractors, or other entities. For instance, nonemployee compensation, such as payments to independent contractors, freelancers, or consultants, is reported on Form 1099-NEC.

Other common payments include rents, prizes, awards, and certain other miscellaneous income, which are reported on Form 1099-MISC. The general threshold for most 1099 reporting is $600 or more paid to an individual or unincorporated business within a calendar year. For tax year 2026, the reporting threshold for Form 1099-MISC and Form 1099-NEC is scheduled to increase to $2,000, with further inflation adjustments in subsequent years.

Consequences for Payers

Failing to file correct information returns, such as Form 1099, by the due date can result in penalties imposed by the IRS. The amount of the penalty varies based on how late the forms are filed and the size of the business. Penalties can range from $60 to $330 per form, depending on the delay. This means a penalty of $60 per form if corrected within 30 days of the due date, increasing to $120 per form if filed more than 30 days late but by August 1, and $330 per form if filed after August 1.

Separate penalties apply for failing to file a correct information return with the IRS and failing to furnish a correct statement to the recipient. Therefore, a single error can lead to two distinct penalties. The IRS also imposes interest on penalties, which accrues until the balance is paid in full.

Higher penalties are levied for intentional disregard of filing requirements. If the failure to file or provide a correct Form 1099 is due to intentional disregard, the penalty is a minimum of $660 per form, or 10% of the income required to be reported, with no maximum limit. Intentional disregard occurs when a payer knowingly or willfully chooses to ignore the filing requirements.

The IRS uses sophisticated information matching programs to identify non-compliance. These systems compare income reported by third parties, such as businesses issuing 1099s, with income reported on individual and business tax returns. When discrepancies are found, the IRS can propose adjustments and assess penalties accordingly. This automated process makes it challenging for non-filers to avoid detection.

Consequences for Recipients

Recipients of income that should be reported on a Form 1099 also face consequences if that income is not accurately reported on their tax returns. The IRS employs an automated underreporter system that cross-references income reported by third parties, like those on 1099 forms, with the income taxpayers declare on their returns. If a mismatch occurs, the IRS typically sends a CP2000 notice to the taxpayer.

A CP2000 notice is not an audit but a proposal to adjust the tax return based on identified discrepancies. This notice outlines the proposed changes to the taxpayer’s income, payments, credits, or deductions and may include additional tax, penalties, and interest. Taxpayers must respond to these notices, either agreeing with the proposed changes or providing documentation to dispute them.

Failure to report all taxable income, including that which should be covered by a 1099, can lead to accuracy-related penalties. One common accuracy-related penalty is 20% of the portion of the underpayment attributable to negligence or substantial understatement of income tax. For individuals, a substantial understatement of tax exists if the amount understated exceeds the greater of 10% of the tax required to be shown on the return or $5,000. Interest charges also apply to any underpaid taxes from the original due date of the return until the balance is fully paid. Even if a recipient does not receive a Form 1099 for income earned, the income is still taxable and must be reported on their tax return.

Correcting Non-Compliance

Payers who need to correct previously unfiled or incorrectly filed 1099 forms can do so proactively. For paper filings, a new Form 1099 should be prepared, with the “CORRECTED” box marked at the top. This corrected form must then be submitted along with a new Form 1096, which serves as a transmittal form for paper 1099s. If the original filing was electronic, the correction must also be filed electronically.

Errors are often categorized as Type 1 or Type 2. Type 1 errors involve incorrect money amounts, codes, or checkboxes, requiring a corrected form with accurate information. Type 2 errors relate to missing or incorrect taxpayer identification numbers (TINs) or names, in which case the corrected form should show the correct TIN or name, with zero for all money amounts. After correcting the form and filing it with the IRS, a copy of the corrected 1099 must also be furnished to the recipient.

Recipients who discover they have underreported income on their tax return, perhaps due to a missing or incorrect 1099, should file an amended tax return. This is typically done using Form 1040-X, Amended U.S. Individual Income Tax Return. Filing an amended return allows the taxpayer to correct any income omissions, claim proper deductions, or adjust other tax-related information. Proactive correction and voluntary compliance can sometimes help mitigate potential penalties.