Can I get in trouble for not sending 1099s?
Yes, and it happens more often than you’d think. Contractors and trades businesses that use subcontractors regularly are the most exposed here because the number of 1099s they should be filing each year adds up quickly. The IRS uses 1099s to match income, and when forms are missing, they notice.
The penalties scale based on how late you file. If you get it done within 30 days of the deadline, it’s $60 per form. Between 30 days late and August 1, it jumps to $120 per form. After August 1, or if you never file at all, the penalty is $310 per form. Pay 15 subcontractors over $600 during the year and skip the 1099s entirely, and you’re looking at $4,650 in penalties before anything else comes into play. If the IRS decides you intentionally ignored the requirement, the penalty increases to $630 per form with no annual cap.
There’s a bigger risk that most people overlook. The IRS can disallow the deduction for payments where you didn’t file a 1099 and didn’t collect a W-9. Say you paid a sub $40,000 over the year and never sent the form. You could lose that entire deduction. That tax hit is far worse than the filing penalty itself.
California makes it worse. The Franchise Tax Board has its own 1099 filing requirement and its own penalties. Operating in Long Beach or anywhere in Greater LA means you’re on the hook with both the federal government and the state.
If you’re behind, file late. The penalties are lower the sooner you do it, and the IRS would rather get the information late than never. Prior year 1099s can still be filed. It won’t erase all penalties but it limits the damage and shows good faith.
The way to avoid this going forward is simple. Collect a W-9 from every subcontractor before you pay them the first time. No exceptions. Make it a rule. Then your full-service bookkeeping tracks every payment to non-employees throughout the year so that come January, pulling together 1099s takes hours instead of weeks. If you’re a contractor or trades business owner who has been guessing at this stuff, working with someone who provides bookkeeping and tax services for contractors is the fastest way to get compliant and stay that way.
Long Beach's CPA for Contractors and Trades
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