Watch Out for These 1099 Filing Penalties (+ How to Avoid Them)

If you work with contractors, consultants, or freelancers that use W-9s, then you probably already have January 31 circled on the calendar. That’s when 1099-NEC forms are due to the IRS for employers. Just when you thought the mad rush from the end-of-year is over, you’ve got another big to-do on your list.

You can’t ignore your contractors when tax season comes around. Filing your 1099s early saves you headaches down the road and makes sure they can get their taxes done, too (and trust me, doing taxes as a freelancer is a nightmare all on its own.) 

But if you miss that January 31 deadline, you’re dealing with more than just an angry contractor. You’ll incur some stiff penalties from the IRS.

What happens if you fail to file your 1099-NEC on time?

The IRS calls this type of penalty an “information return penalty.” You’ll incur these penalties if:

• You file your 1099-NEC form after the January 31 deadline
• There is missing or inaccurate information in your 1099-NEC form

For 2025, penalties can be as high as $330 per form—and if your business is deemed to be in “intentional disregard,” you’re facing a $660 penalty. And don’t forget interest.

These penalties apply to each form that you file. Penalties are applied separately for late and inaccurate filings, so if your form is late and inaccurate, that’s a double-whammy.

How to avoid penalties for 1099-NEC filing

Tax season is challenging enough without dealing with these kinds of penalties. Here’s how you can avoid them in the future:

1. Apply for an extension to file your 1099-NEC

Companies can apply for an extension to file 1099s, but you have to meet pretty stringent criteria to be eligible without paying a fine. You must meet one of the following conditions:

• A catastrophic event in a federally declared disaster area made it impossible to resume operations
• Business operations were disrupted by a fire, casualty, or natural calamity
• The individual responsible for filing the form was unable to return the information because of death, serious illness, or unavoidable absence
• The information required for 1099-NEC filing, like Schedule K-1 or Form 1042-S, wasn’t provided in time
• The business is in its first year of establishment
  

To receive an extension to file a 1099-NEC, you must apply by submitting Form 8809. 

You can see that you need some pretty serious “unforeseeable” kind of circumstances to be granted an extension—which means that even if you’re trying to file multiple 1099 forms or chasing down information from contractors, you still need to get it done by January 31. 

2. File a waiver for electronic filing

Starting in 2024, the IRS requires electronic filing if you’re handling 10 or more information returns of any kind during a calendar year (that includes most 1099 and 1098 forms.) Honestly, that’s a good thing, because it makes it much easier to complete your paperwork.

However, if you don’t think you’ll be able to meet that electronic filing requirement, you can request a waiver with Form 8508. Similar to filing for an extension, these waivers are not automatically accepted, and come with strict requirements. For example, you must prove either that filing electronically conflicts with your religious beliefs or that it causes financial hardship—and even if you do fill out the form, it may still be rejected.

3. Audit your 1099 filing process before tax season begins

If you’ve had issues with filing in the past or are worried about this tax season, it’s time to take a look at your filing process and see how you can improve.

• Understand what is creating the issue in your current 1099 filing process. Filing a successful 1099 requires many different steps, from receiving a completed W-9 form to verifying TINs through the IRS, calculating the full payout amount for the calendar year, and then filing the 1099. Talk with your team to understand what the process looks like and where it runs into problems, whether that’s dealing with errors or lots of back-and-forth with contractors over the correct information.

• Determine what tools you’re using to handle filing. Tax compliance requires multiple systems that probably don’t talk to one another effectively…and weren’t built with tax compliance in mind. Your team might be looking through Docusign records or email correspondence for W-9s, payout information from your payroll provider or a system like Gusto, and TIN verification through the IRS. Map this out to determine what you can streamline.

• Decide if outsourcing makes sense for you. If you’re working with a small team—or simply want your team dedicated to their *actual* jobs during this busy time—consider outsourcing the process. You might hire accountants or adopt software that can automatically generate 1099-NEC forms and offer support to contractors. 

The best way to avoid a penalty is to file your 1099-NEC correctly and on time in the first place. Building the right process for your business will help you do that.

4. Collect your W-9 information during contractor onboarding

Hiring a consultant or contractor usually happens in a rush—you needed them to start working, y’know, yesterday—but spending a little bit of extra time in the onboarding stage can make sure you don’t run into headaches during tax season. 

Just as you would send them information about the project at hand and sign a contract, make sure you’re also asking your contractor to fill out their W-9 form up front. Then, go through the TIN verification and double-check their information before they start work to save yourself time later.

5. Automate your tax filing process

What if your tax filing process was easy?

Most 1099-NEC filing looks like this:

• HR or accounting teams request a W-9 from the contractor
• They manually verify the Taxpayer Identification Number (TIN) by going to the IRS website
• Separately, they calculate each non-employees full payment total 
• If any information is missing, they communicate with the contractor via email
• Finally, they file the 1099 form with the IRS

This manual process takes a ton of time and back-and-forth with contractors, which puts you at risk of missing that January 31 deadline. Automating the process with the right software eliminates this long, frustrating process, saving you time and money.

At Wingspan, we specifically designed our platform to make tax filing super easy for employers that work with contractors.Our platform auto-calculates payment totals from past transactions and integrates with financial tools to pull imported payments data. With this combined reporting, our platform generates accurate, reliable 1099-NEC forms in one click. Learn more about how we can make your tax season easy this year >