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Payroll Taxes

Advice for Small Business Payroll – How to Correct a Previously Issued Form 1099-MISC?

March 22nd, 2016

Are you a small business and have issued an incorrect Form 1099-MISC to an independent contractor or vendor? What should you do, if after issuing a 1099-MISC, the recipient informs you that there is a mistake in the name, tax ID, address, and/or amount? Just follow these tips below to make the correction.

Has your small business payroll filed the 1099-MISC form to the IRS?

First, you need to confirm that you have filed the 1099-MISC form to the IRS.  If not, you can probably create a new 1099-MISC with the corrected information for the recipient. You then need to ask the recipient to destroy the incorrect form and use the corrected form for tax returns.

Your small business payroll has filed the 1099-MISC form with the IRS and a 1099-MISC correction is needed.

If the 1099-MISC form has already been filed to the IRS by mail or e-file, you will need to prepare and issue a 1099-MISC correction in order to make any changes.

Corrections on a 1099-MISC are done with a regular 1099-MISC form. Depending on the type of corrections, the payer/company will need to prepare a 1099-MISC form differently in order to make corrections.

1099-MISC correction based on error types.

  1. Form 1099-MISC Type 1 Error – incorrect amount, code, and/or checkbox.This type of error is easier to correct.  The payer just needs to prepare a new 1099-MISC form with the corrected amount, code, or checkbox, and enter an “X” in the “CORRECTED” box at the top of the form.
  2. Form 1099-MISC Type 2 Error – incorrect payer, recipient tax ID (EIN, SSN, e.g.), name, and/or form type.This requires a 2-step process (two 1099-MISC forms) to make one correction.  The basic concept is to cancel the previously issued form and issue a new 1099-MISC and correct form.The way to cancel a previously issued 1099-MISC form is to use the same procedure for a Type 1 correction described above, except all corrected amounts are “0”.  So the 1st form uses the same incorrect information (Tax ID, name, etc.) as before with “0” filled in for any amounts and with the “CORRECTED” checkbox being checked. This form effectively cancels the previously issued form.

    Then you need to prepare a 2nd 1099-MISC form with the corrected name, tax ID, and/or amounts as if it is a brand new, original form. Do not mark the “CORRECTED” checkbox.

    The process can be bit confusing, so please keep in mind some of the following:

    • The “VOID” checkbox on top of the form does not cancel or void a previously issued Form 1099-MISC.  It is used when you do not want the IRS to process the form. It is only useful for paper forms because each paper copy for the government has two Form 1099-MISC (top and bottom). It is rarely used.
    • To correct a name and/or a tax ID, two forms are needed. One of the forms still requires the incorrect name and/or tax ID. However, the amounts will be filled in as “0” or blank, which will effectively cancel the previously issued incorrect form. When a form is cancelled, you end up with a 1099-MISC with incorrect payer and/or recipient information and no amounts, which looks strange to most, but is the correct procedure.
    • There is no e-file option for 1099-MISC correction for incorrect “Address” only, meaning the payer cannot e-file a 1099-MISC correction to change an incorrect address by itself without correcting other items. If it is necessary (changing State, e.g.), the user can file a correction to cancel the previously issued form using the Type 1 method then prepare a brand new form.
    • Do not check the “CORRECTED” box even if you are making a 2-step correction.
    • Form 1099-MISC is not limited to one filing for one company a year. However, each batch of 1099-MISC needs a form 1096 for paper filing. The same is true with 1099-misc correction.

In summary, 1099-MISC correction can be confusing for many small business payrolls.

The key is to remember how to use the “CORRECTED” checkbox, to cancel a previously issued form and issue a new form.

Just remember, when you e-file Form 1099-MISC, you should use two 1099-MISC forms for correcting Tax IDs and/or names and use one 1099-MISC form for correcting amounts.

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