There can be penalties for noncompliance, and the independent contractor (vendor) may have difficulty accurately reporting their income to the IRS.

Additionally, independent contractors depend on 1099-NECs as proof of income and often need to supply them when applying for loans.

For the business, the IRS may cross-check against returns, alerting them to discrepancies that may result in a business tax audit and disallow some of the business tax deductions taken. Audits are time-consuming and can increase the business owner’s tax liability.

In January, forms are sent to vendors and the IRS for the previous year’s activity. The fines for noncompliance are calculated by form and grow in amount as the number of months past due grows. If forms are not submitted intentionally, the penalties are more significant.

More information can be found about 1099-NEC requirements at irs.gov or you may contact Morgan Morrow Bookkeeping. We would be happy to answer questions or help with filings.