Increased Penalties for Failure to File Information Returns

stiffer penalties for failure to file information returns

The Trade Preference Extension Act (the TPE) became law on 6/29/15, and included in it were a few little-noticed but significant changes to the penalties for failing to file required information returns (i.e. 1099s and W-2s) and, in some cases, for failing to send copies to the necessary parties (e.g. payees such as vendors and employees).

So how big are these new penalties?

That depends on a few key variables, notably:

  • How long after the due date you finally get them filed (and get copies sent to the payees)
  • Whether the failure was intentional or unintentional
  • How big of a taxpayer/business you are

What does that mean in actual numbers?

  • At the bottom of the range, one unintentional failure-to-file will cost you $250 (up from $100)
  • At the top of the range, the maximum penalty on any one taxpayer, which would be the result of multiple unintentional failures to file in a single year, is $3 million (yes, million, up from $1.5 million)
  • These amounts have already been increased thanks to inflation adjustments, and  for 2016 the lowest penalty is up to $260
Is there any way out of the penalty?

Not entirely, but there is some relief for unintentional failures-to-file that are subsequently corrected:

  • For returns corrected/filed within 30 days of the due date, the penalty would be reduced to $50 per failure (up from $30 prior to the TPE)
  • For returns corrected/filed after 30 days but before August 1st, the penalty would be reduced to $100 (up from $60 prior to the TPE)
It’s worse if it’s intentional…

The penalty for a willfully failing (meaning the taxpayer disregarded the rules) to file a single information return will get up to $530 in 2016, with no maximum penalty per taxpayer.

With all of these late filing penalties, when are the returns actually due?

  • Thanks to another new set of rules, W-2s and most 1099-MISC forms (what you give to your vendors) are due both to payees (vendors, employers, etc.) and to the IRS on January 31
  • Other information forms are due to the payee on Jan 31 and due to the IRS on Feb 28 (if paper filed) or March 31 (if E-Filed)