How the IRS assesses information-reporting penalties

The IRS imposes penalties when required information returns (such as 1099‑NEC, 1099‑MISC, 1099‑C, W‑2 and others) are not filed, are filed late, or contain incorrect information that the filer fails to correct. Penalties are tiered by how late the correct return is filed and are substantially higher when the IRS determines there was intentional disregard of the filing requirement. Amounts are adjusted periodically—always confirm current figures on the IRS site. (See IRS penalties and information-reporting pages below.)

Key penalty categories

  • Failure to file or furnish a correct information return: civil penalty per return for late/not filed or incorrect returns. The penalty increases the later the correction is made.
  • Failure to furnish payee statements (e.g., giving the recipient their copy of a 1099): separate penalties can apply per payee.
  • Intentional disregard: a much larger per-form penalty applies when the IRS finds intentional disregard of the filing or furnishing requirement.

Typical impacts (what to expect)

  • Small-business & individual exposure: Penalties are assessed per form; multiple missing or incorrect forms can multiply the total fine quickly.
  • Additional tax adjustments: Information‑reporting penalties are separate from any tax assessed on unreported income; missing reporting can also trigger audits or notices that increase tax, interest, and other penalties.

Example scenarios

  • Late 1099 filing: If a small business files correct 1099s after the due date but before the IRS issues penalties, the business may face a reduced per‑form penalty. If corrections are filed much later, the penalty per form is larger.
  • Intentional omission: Repeated, deliberate failure to file required 1099s to hide payments can lead to higher per‑form penalties and increased IRS scrutiny.

How to respond if you receive a penalty notice

  1. Read the notice carefully—IRS correspondence explains which form, tax year, and payee are affected.
  2. If the return was filed or corrected, gather proof (filed return copies, certified mail receipts, e‑file acknowledgments) and submit the documentation per the notice instructions.
  3. If you believe the penalty is incorrect, follow the notice’s appeal or response steps—often a written explanation and supporting documentation are required.
  4. Consider contacting a tax professional when notices involve large totals or claims of intentional disregard.

Seeking penalty relief

  • Reasonable cause: The IRS may abate penalties when filers demonstrate reasonable cause (for example, natural disaster, serious illness, or death in the family) and that they exercised ordinary business care and prudence. See IRS Publication 1586 (Reasonable Cause) for criteria and examples. (IRS: Publication 1586).
  • First‑time penalty abatement (FTA): Small, qualifying taxpayers may be eligible for FTA for certain penalties if they meet eligibility rules (check current IRS guidance).
  • Correct promptly: Filing corrected information returns as soon as errors are discovered reduces potential penalties.

Practical prevention steps (what I advise clients)

  • Build a 1099 process: Track contractor and vendor payments year‑round and request W‑9s before issuing payments.
  • Reconcile early: Match your payee records to vendor invoices and bank statements each quarter to catch discrepancies early.
  • Use e‑filing and confirmations: E‑filed information returns provide electronic acknowledgments you can keep as evidence of timely filing.
  • Fix mismatches quickly: If you get a CP2000‑type notice or a notice about mismatched 1099s, respond with documentation and corrected returns where appropriate.

Related resources on FinHelp

Authoritative sources

Professional disclaimer
This article is educational and not individualized tax advice. For a formal determination, penalty abatement request, or representation before the IRS, consult a CPA, enrolled agent, or tax attorney who can review your records and file the appropriate responses.