5 FAST FACTS: WHEN NOT TO FILE A 1099 CORRECTION
1. If a payer reports the information that a payee provides and after the return is filed, the payee presents new information and requests a corrected return, the payer is not required to file a correction. However, depending on the customer service relationship the payer has with the payee, the payer may choose to file the correction.
2. A payee may present a new W-9 and claim that it was actually another party that earned the income and should have received the 1099. This may be an “assignment of income” situation. Assignment of income is when the beneficial owner of the income, or the person with the tax obligation (the payee), assigns a third party to receive a payment on their behalf or donates the payment to a third party. The income still belongs to the beneficial owner so they are the recipient of the 1099 and the payer is not required to file a corrected return.
3. A payee may be attempting to avoid their tax responsibility to the Internal Revenue Service (IRS) and does not want you to report their income. It is NOT a good idea to agree to file a correction just to eliminate reporting, though it is a request you might get from a payee.
4. If a payee is an exempt recipient such as a corporation, there is no harm done if the payer accurately reports the amount paid to the corporation. However, a payee may request a correction if they became incorporated during the course of the year. The payer does not owe the payee a correction if the payee provides the updated information after the 1099 is filed.
5. If the payee is a contractor that wants the payer to report only contractor fees and not the reimbursed expenses, the payer has the option to just report the fees or to report the gross amount. 1099 reporting expert Denise Johnson, Esq., supports including contractor fees with the reimbursed expenses because it’s easier for the payer to report both and it helps distinguish the contractor from an employee in worker classification issues. This does not burden the contractor with additional tax liabilities because they are still able to take the deduction for the expenses on their own income tax return.