Understand Everything about 1099 Correction: Type I and Type II

Not everyone has a knack for names and numbers. Unfortunately, the IRS is not very sympathetic to name-TIN mismatches or any other mistakes in 1099 forms. Therefore, understanding the process of 1099 correction is essential for ensuring accurate tax reporting and compliance with IRS regulations.

 

Introduction

The IRS can be unforgiving when it comes to returns filed with incorrect information. If you’ve been lying awake, waiting for the IRS to break down your door and give you 5-10 in a cold cell for reporting Box 4’s amount in Box 7…go through the corrected filing process. It’s a good alternative to paying hefty penalties.

If you originally filed by paper, you need to submit a corrected paper copy (Red Copy A and Form 1096) to the IRS. However, if you filed it electronically, you can correct the form on the e-file site for the same tax year.

 

Correct 1099 Forms

 

1099 Corrections for Different Error Types

1099 corrections are required for two types of errors: type 1 and type 2, each requiring specific correction procedures. The type 1 only requires one 1099 form to be filed to correct the mistake. On the other hand, Type 2 requires two 1099 forms to be filed to make the correction.

Type 1 Errors-

This type of error occurs when you file a form that should not have been filed (in this case, your corrected form would show zeros), or when you prepare a form with:

• An incorrect amount
• An incorrect code or checkbox
• An incorrect name or address for the payee (but the correct TIN)

 

Type 2 Errors-

Type 2 errors occur when you prepare a form with:

• Incorrect payer information, including the wrong Taxpayer ID Number (TIN)
• Incorrect recipient information, including the wrong TIN
• The wrong form type (e.g., a 1099-INT instead of a 1099-DIV)

To correct type 2 errors, you will need to file two corrected 1099 forms:

The first 1099 will contain the same payer and recipient information as the initially filed form, but the amounts on the form will all be zeros, and the “CORRECTED” box has to be checked. It removes the initial form that was filed earlier (that had errors) from the IRS records.

 

Examples

Let us explore different scenarios to understand how these mistakes can be corrected and identify the type of 1099 error they represent.

“I just got my 1099 form, and you spelled my name wrong. I’m Abbey, with an ‘ey.’”

Some parents buy an extra vowel when naming their kids. Don’t hold it against your vendor –  you can smooth this over with the IRS pretty easily. Navigate to the Forms tab on the left-hand side of your Tax1099 screen. Click “New Form,” and select the same type of form that you filed for Abby (sans the “ey”). This new form will fix the name issue, so long as you check the “corrected” box at the top of the page. Fill in the info for the person you thought you knew (Abby, rather than Abbey). Then, zero the amount you originally filed. Submit the form. This will tell the IRS how sorry you are to have forgotten the “e,” and make it like it never happened.

To introduce the IRS to the Abbey you know and love, go again to Forms > New Form, and select the form you need to file for Abbey. You’re starting with a clean slate now, so don’t check the “corrected” box on this form. Edit her name in the recipient box, submit the form, and rest easy.

 

“I think I forgot to tell you that I write my 1’s like 7’s…is it too late?”

Well, if the vendor’s social is 111-11-1111, but it looked like 777-77-7777 on the W-9, there might be a problem. Quick! Before the IRS breaks down your door, go to Tax1099.com > Forms > New Form. Select the same type of form as you filed for 777-77-7777. You’ll check the “corrected” box at the top of the page. Input 777-77-7777’s information as you originally filed it. Enter zero amounts in the relevant boxes. You’ll submit that corrected form, and file and submit a new form with the accurate information. Vendor 111-11-1111 will think you’re #1.

 

“I don’t know who worked on a fishing boat for you, but it wasn’t me. I’m your personal finance consultant … and I made $2,000, not $20,000.”

That’s so embarrassing for you … you’ve been dreaming of becoming a fishing boat captain, and now you’ve slipped up and reported your hidden wish to the IRS. Blame it on that Facebook post you saw on Freud, blame it on the crazy tax season, or, you know, you could just file a corrected form. Go to the Forms tab in Tax1099.com, select the same type of form you originally filed from “New Forms,” fill out the vendor’s information, and fish the vendor’s box amounts out of your files (and put it in the right box this time!). Select the “corrected” box at the top of the page, and submit the form. Maybe your boss will give you a raise, and you’ll get that fishing boat up and running after all.

 

“What are you trying to pull? I don’t work for you anymore. Why did you send me a 1099 form?”

The IRS isn’t the only entity that gets excited when 1099 forms aren’t as they should be. One of your vendors could easily rival their energetic inquiries, especially if … they aren’t … actually … your vendor … hmm. Maybe this vendor worked for you last year, and you’ve accidentally filed the old information a second time. It’ll be okay. Head over to Tax1099.com, click on Forms > New Form. Select the same type of form you’re kicking yourself for filing the first time. Key in the vendor’s information, and put zero amounts in the relevant boxes. Check the Corrected box at the top of the form before you submit, then go grab some tacos! It’s always good to catch up with old friends.

We hope this has been helpful to you! As always, feel free to chat with us or email us at [email protected] if you have any questions.

 

Correct 1099 Forms