New guidance for information reporting penalties (1099s)

Your Guide to State, Local, Federal, Estate + International Taxation

information reporting, penalties, 1099, de minimus safe harborThe IRS issued a new notice last week (2017-9). This notice provides guidance on the de minimis safe harbor from information reporting penalties under Secs. 6721 and 6722 and the payee election not to have the safe harbor apply. To keep this clear for everyone….it applies to 1099 reporting. It was established by section 202 of the Protecting Americans from Tax Hikes Act of 2015 (PATH Act), but I realize you don’t care about how it was established, so let’s get to the important issues and how it affects you!

First, it applies to only information returns and payee statements required to be filed after December 31, 2016.

Under this new safe harbor, NO penalty is imposed for an error on either the information return or payee statement NOR does it need to be corrected, IF (there’s always an “IF”) the error is de minimis. A de minimis error is an incorrect dollar amount that is no more than $100, OR $25 in the case of an error with respect to an amount of tax withheld.

HOWEVER, the payee may make an election that forces the payer to notify them and the IRS of any corrections, no matter how small. The safe harbor doesn’t apply if the payee makes an election. If made, the payer may be subject for a de minimis error if the error goes uncorrected. Another however…if a payer corrects the payee statement and files a corrected information return with the IRS within 30 days of the election, the penalties will not apply. This is only for corrections. The exception only applies if the forms are filed. There is no penalty break for filing late.

A small margin for error is better than no margin for error. Happy 1099 reporting to you and your company!

Side note: This also applies to W-2s and W-2cs but the IRS is encouraging payers to correct regardless of how big the error is to ensure employees receive proper credit for their wages from the Social Security Administration

Chris Morrison, CPA