How to Deal with an Incorrect 1099 Form [Helpful Example]

How To Fix Incorrect 1099

If you receive an incorrect 1099, first reach out to your client and try to get it corrected. If that doesn't work contact the IRS at (800) 829-1040 for instructions. You may just have to include a letter with your tax return stating why there is a discrepancy.

Last year, Jason did some independent contractor work for a venture capital-backed company in Houston, about four or five hours away from his home in the Dallas-Fort Worth metroplex.

He would travel and stay in Houston on the weekdays and come back home on weekends.

Jason paid for his expenses out of pocket. The company agreed to reimburse him for his travel expenses, including gas, hotel, meals, and incidental company purchases.

Two months in, investors backed out of the project. He lost a couple thousand in actual dollars spent, not to mention several thousand more for non-payment of mileage, company purchases, and wages payable.

The only money Jason received was one check for $1,000 to help offset some of the expenses he had already incurred.

Jason walked to his mailbox months later. He was surprised by a 1099-Misc Form from that Houston company as he had not received any income, only partial reimbursement for his expenses.

The amount listed on the 1099 form was six hundred and some-odd dollars and change. Not only did he receive an unexpected 1099 form, but the amount was totally random and didn't even match the dollar amount he actually received.

What is a 1099 Form?

Before we get into how to fix an incorrect 1099 let's quickly define what a 1099 actually is and why you received one in the first place.

There is actually a series of 1099 forms through the IRS, which they refer to as information returns. 1099 forms are used when a person receives money outside of their wages from their employer. You should receive a 1099 form when you receive interest from a bank or dividend income.

A 1099-Misc form, which is what Jason received, is a form used by the IRS to report wages paid to non-employees, like independent contractors and freelancers. Companies are required to send you a 1099-Misc form if they paid you $600 or more in a calendar year. They also send a copy of the 1099-Misc form to the IRS directly.

Related: 7 Strategies to Save You Thousands Each Year in Taxes (Year-End Tax Planning)

How Do You Fix an Incorrect 1099-Misc Form?

Jason wasn't sure what to do with his situation. If you find yourself in a similar situation, there are some steps to take to correct the mistake:

Open Your Mail and Take Action Immediately

You won't know there are any mistakes on your 1099 form unless you open your mail and verify every detail. Also, if you sit on it for a while and don't do anything, you run the risk of not getting the issue fixed in time. There's also the chance that the IRS notices the discrepancy and wants to take a closer look at your taxes.

Reach out to the 1099 Issuer

If there is a discrepancy on your 1099-Misc form, take steps to contact the issuer immediately to correct the issue. If they did make a mistake and they confirm it on their end, all they would need to do is send in an amended 1099-Misc form to the IRS. The form actually has a checkbox at the top to mark if it's an amendment.

Don't Neglect Your 1099 Form

To not worry about your incorrect 1099-Misc form would be a big mistake. You get a copy of your 1099. So does the IRS. The IRS will look at those, all of your personal information, and your income and make sure everything matches up. If not, at some point you will have to account for any mistakes.

What if the Company won't Correct the Mistake?

If you run into a situation where the company doesn't agree with you or isn't willing to take time to fix the problem, you still have options. Jason's former employee refused to cooperate. He requested the form be changed three separate times, but was unsuccessful. Jason ended up calling the IRS helpline: (800) 829-1040. They told him to claim his income and deduct his expenses. Then include a note explaining why the particular 1099 form was wrong, and what the correct figures were for income and deductions.

Jason went ahead and claimed $1,000 of income and offset the rest as expenses while leaving a detailed explanation as to why there is a discrepancy.

Related: Where to Get Your Taxes Done (The 3 Best Places and Prices)

What if I receive a 1099-Misc Form for less than $600 Work?

Sometimes businesses will send out 1099s regardless of how much money they paid independent contractors. Instead of running the risk of missing someone or having to take time to separate out who needs one and who doesn't, often companies just fill them out for everyone. This is similar to you receiving one from your bank for $8 worth of interest for your savings account. It's not a big deal to get a 1099 for work less than $600. Claim all of your income and you are set.

What if Your 1099 Form includes Expenses and Income

It is possible that a company that employs you includes payment for items that you don't consider income, such as reimbursement for expenses. For example, you were paid $10,000 to remodel a kitchen and were reimbursed $5,000 for materials. When the 1099 arrives, the amount is for the entire $15,000, rather than the $10,000 you received as actual income.

How do you fix this? Report $10,000 as income, and take all the deductions that you are entitled. In this case, your expenses are $5,000 in materials. With this method, all will even out, and no correction is needed.

What if I Receive Double 1099 Forms?

There are times you might receive two 1099 forms for the same work. One would be from the business who paid you and the other could be from a payment service like Paypal or pay with a credit card. Companies are not required to send a 1099 form to you (or the IRS) in those cases because that is handled by electronic payment providers. This would be the case even if you were paid more than the $600 over the course of the year. More than likely you will receive a 1099-K from Paypal or credit card companies.

Why would you receive two then? Similar to receiving one for less than $600 worth of work, companies want to protect themselves. There are no penalties for sending 1099 forms when not needed. Businesses face penalties for failing to send one when required. If this does happen to you, be sure to keep detailed records of your income. You want to turn in both 1099 forms with your taxes, but you don't want to count that income twice.

What if I Didn't Receive a 1099 Form at All?

In the case of electronic payments, companies are only required to send you a 1099-K when there are 200 total transactions or they pay you $20,000 or more. You might not get a 1099 at all. That's ok. Whether you receive one or not, you should claim all of your income.

Related: The Best Accounting Software for Small Business

The Importance of Keeping Good Records

One thing that can help Jason and other freelancers and independent contractors it to keep detailed records. Record all of your income. Don't forget to track all of your expenses as well. Stay organized. Keep detailed documentation. If there is a mistake on your 1099 form, you will have the information to fix the issue, whether through the 1099 issuer or the IRS.

Regardless if you do your own taxes or someone else does, it is important to be on top of things like 1099 forms. Make sure you turn in everything you need to ensure that your information is accurate and that the IRS doesn't have to come calling with questions about your income.

Have you ever received an incorrect 1009? How did you end up fixing it?

About Kevin Payne

Kevin Payne is a freelance writer from Cleveland, Ohio and the family travel and budget expert behind  Family Money Adventure. Follow their family adventures on Facebook and Twitter.

Comments

  1. I worked as a project manager and one of my projects I had to use a 1099 because the contracting house hired me as an independent consultant which was good and bad, the bad was having to account for everything that I did. Had to also save 25% of my money which went straight to taxes, I would have claimed extra things if I understood the nature of 1099 back then but lesson learned.

  2. Is there a way to sue an investment company for cutting a 1099R wrong. We moved money from one company to another and they cut the 1099R for that money and would not correct it for 5 years. I had to sell assets to pay for the tax that was owed.

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    Joannah