Forms W-2 & 1099-MISC Corrections February 1, 2017

Were you busy meeting a new IRS deadline for Forms W-2 and 1099- Miscellaneous Income?

IRS says making a small mistake on income or withholding doesn’t require a correction.

2016 Forms W-2 and 1099-Miscellaneous Income (if there is an entry on box 7 for Nonemployee compensation) were due to the IRS by January 31, 2017. That’s at least a month earlier than the year before. The problem? What if my client makes a small mistake on the W-2 or 1099 in reporting income or withholding? In prior years, the IRS never saw the mistake if we made the correction prior to the February 28 due date (March 31 for some issuers). This year, we could be caught up in issuing corrected forms to the IRS.

In a small bit of relief, the IRS says “close is close enough.” IRS issued guidance, indicating that for purposes of Forms 1099, W-2, and other information returns, being within $100 is close enough! In other words, if the Form 1099 that was issued was within $100 of the actual payment amount, then you don’t have to file a corrected Form 1099. For Federal income tax withholding, being within $25 is close enough to avoid correcting.

Of course, you always have the option to correct the forms—you’re just not required to. But if the recipient complains, the employer must issue a corrected form for the actual amount.

Tax practitioner note. If the income is overstated or the withholding understated, want to bet that the recipient demands a correction, even for small amounts?

For more information, see IRS Notice 2017-9 (Jan. 4, 2017).