How Small Business Owners Can Fix W-2 and 1099 Errors
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Mistakes Are Costly! Here’s How to Fix W-2 and 1099 Errors

Congress recently passed a law that significantly increased the penalties for errors found on Forms W-2 and 1099. Tucked into Section 806 of the Trade Preferences Extension Act of 2015, the provision means employers will have to pay greater fines for mistakes on forms they submit. This new law is for forms required to be filed after Dec. 31, 2015.

The below chart lists the penalty categories and the fine increases:

 Penalty Type Old Amount
(For errors Dec. 31, 2015
and before)
New Amount
(For errors after
Dec. 31, 2015)
Correction made within 30 days of required filing date $30/return;
$250,000 annual cap
$50/return;
$500,000 annual cap
Correction made within 30 days of required filing date for companies with gross receipts of $5 million or less $30/return;
$75,000 annual cap
$50/return;
$175,000 annual cap
Correction made by August 1 of the year when filing was required $60/return;
$500,000 annual cap
$100/return;
$1.5 million annual cap
Correction made by August 1 of the year when filing was required for companies with gross receipts of $5 million or less $60/return;
$200,000 annual cap
$100/return;
$500,000 annual cap
Error made on form and failure to submit a timely correction $100/return;
$1.5 million annual cap
$250/return;
$3 million annual cap
Error made on form and failure to submit a timely correction for companies with gross receipts of $5 million or less $100/return;
$500,000 annual cap
$250/return;
$1 million annual cap
Completely ignoring the error (intentional disregard) $250/return;
No annual cap
$500/return;
No annual cap

The penalties will receive an inflation adjustment every five years beginning in 2017.

Not only do the penalties apply to errors on forms submitted to the IRS, but they also apply to forms sent to employees and contractors. This means you can get fined doubly. For example, a business completely ignores the errors made on W-2s for all 10 of their employees. The business would be fined $5,000 for errors on forms to the IRS, and they may also be fined $5,000 for errors on forms sent to their employees, for a total $10,000 owed.

With such steep penalties for errors on W-2s and 1099s, it is important to fill out all forms correctly the first time. But if you do make an error, it is important to know how to correct it—and correct it quickly—to avoid higher fines.

Correcting Form W-2

Common errors on Form W-2 include incorrect amounts, withholdings, codes, names, social security numbers, addresses, or in general, a handwritten w2.

If you discover that a submitted Form W-2 has an error on it, you need to file Form W-2c, Corrected Wage and Tax Statements. Along with it, you will submit Form W-3c, Transmittal of Corrected Wage and Tax Statements. Instructions on how to fill out and submit both of these forms is found in the General Instructions for Forms W2 and W-3.

You should submit these forms as soon as possible after you discover an error on a W-2.

Correcting Form 1099

How you correct a 1099 is determined by what type of error you made.

An Error Type 1 means you used an incorrect money amount, code, or checkbox. To correct this type of error:

  1. Prepare a new IRS Form 1099. At the top of the form, check the “corrected” box.
  2. Completely fill out the form, but use the correct information.
  3. Fill out a new Form 1096.
  4. Submit the new 1099 and 1096.

An Error Type 2 means you listed an incorrect payee TIN (or none at all) or an incorrect payee name. An Error Type 2 requires two new 1099s.

  1. At the top of the first new 1099, check the “corrected” box.
  2. Enter the payer, recipient, and account number information as it appears on the incorrect form.
  3. For all money amounts, enter 0.
  4. Prepare a second new 1099, but do not check the “corrected” box. Include all correct information on this form.
  5. You will also need to prepare a new 1096. Completely fill out the 1096, and in the bottom margin enter either “Filed To Correct TIN,” “Filed To Correct Name,” or “Filed to Correct Return.”
  6. Submit the new 1099s and 1096.

As with the W-2, you should submit a corrected 1099 as soon as possible.

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