Forgot to file one 1099-NEC and 1096 with the IRS. What penalty should I expect?

The good news is you're catching this and fixing it - that counts for something! The IRS does have penalties for late 1099-NEC filings, but they vary based on how late you file and whether there was intentional disregard. Since you're filing more than a year late, you're looking at a penalty of $290 per form (2022 rate, may have been adjusted since). So that would be $290 for the missed 1099-NEC. The 1096 is just a transmittal form and doesn't carry its own separate penalty. The IRS sometimes offers penalty relief for first-time mistakes, especially for small businesses. When you file, include a letter explaining this was an oversight and that you've implemented procedures to prevent it from happening again. This might help reduce or eliminate the penalty. Also, check if your buddy/contractor reported the income correctly on their taxes. If they did, the IRS might be more lenient since they got their tax revenue anyway.

Been there, done that! After dealing with a similar issue, I found taxr.ai (https://taxr.ai) extremely helpful. I had forgotten to file a 1099 for a contractor and was freaking out about penalties. Their system analyzed my situation, showed me the specific IRS penalty guidelines that applied to my case, and suggested exactly what to include in my reasonable cause letter to the IRS. They have this feature where they can review your specific situation and give you personalized guidance based on actual IRS precedents. The best part was their document analysis that pointed out I qualified for first-time penalty abatement since I had a good compliance history. Saved me from a panic attack and potentially hundreds in penalties!

Just wanted to follow up about my experience with taxr.ai - I decided to give it a try after my skeptical question. Honestly amazed at how well it worked for my situation! I uploaded docs for my 3 different businesses and it immediately identified which ones qualified for first-time penalty abatement. The system generated a perfect reasonable cause letter that included specific references to my filing history. Just got confirmation from the IRS yesterday that they're waiving $870 in penalties across two of my businesses. The third one still has a penalty but it's much lower than I expected. If you're dealing with missed 1099-NECs like the original poster, definitely worth checking out.

If you need to actually speak with someone at the IRS about this (which I recommend), good luck getting through on your own! I spent HOURS on hold trying to explain a similar situation with late 1099s. Finally used https://claimyr.com to get a callback from the IRS instead of waiting on hold. They have this system where they navigate the IRS phone tree for you and when an agent is available, they call you. You can see how it works here: https://youtu.be/_kiP6q8DX5c When I finally got through, the IRS agent was actually pretty helpful and walked me through the abatement request process. They explained exactly what documentation I needed to provide and even gave me the correct address to send everything. Saved me so much time and frustration!

Ok I need to publicly eat my words here. After posting my skeptical comment, I was desperate enough to try Claimyr for my 1099-NEC issue. Holy crap it actually worked! Set it up yesterday afternoon, got a call back from an actual IRS agent this morning. The agent pulled up my account and confirmed that since this was my first time missing a filing deadline, I qualified for the first-time penalty abatement program. She processed my request right on the phone and said I should get confirmation in 2-3 weeks. Would have NEVER known about this without actually talking to a human at the IRS. Can't believe I wasted so many hours trying to get through on my own!

One thing nobody's mentioned yet - if your contractor correctly reported the income on their Schedule C, you have a strong case for penalty abatement. The IRS is mainly concerned with collecting the taxes, and if your buddy paid taxes on the income, you can argue there was no harm to the treasury. Ask your contractor for a statement confirming they reported the income. Include this with your reasonable cause letter when you file the late 1099-NEC. I did this exact thing last year and got my penalty fully waived.

Something similar happened to me last year. Filed late 1099s for three contractors. Got hit with penalties initially but called and asked about the "First Time Abatement" program and got all penalties waived! Make sure to mention you have a clean compliance history if that's true for you.

Don't forget that if you already paid him as a contractor, he should have paid his own self-employment taxes on that income. You're just fixing the reporting part. Might help you sleep better at night knowing the actual tax was probably paid even if the paperwork was late!

This is exactly the kind of situation where staying calm and being proactive really pays off! I went through something similar with my small business two years ago - missed filing a 1099-NEC for a $4,200 payment to a freelance designer. Here's what worked for me: I filed the late forms immediately with a detailed reasonable cause letter explaining it was an honest oversight, not intentional disregard. I also included evidence that my contractor had properly reported and paid taxes on the income. The IRS ended up waiving the entire penalty under their first-time abatement program. The key is to file those forms ASAP and be completely transparent about the mistake. Document everything - when you discovered the error, steps you're taking to prevent it in the future, and any evidence that the contractor reported the income correctly. One tip: when you write your reasonable cause letter, focus on your overall good compliance history (if applicable) and emphasize that this was a procedural oversight, not tax avoidance. The IRS is surprisingly reasonable when they see genuine efforts to comply. You've got this! The fact that you caught it and are fixing it immediately shows good faith.

I'm dealing with almost the exact same situation right now! Missed filing a 1099-NEC for a contractor I paid $5,800 last year. Reading through all these responses has been incredibly helpful - especially learning about the first-time abatement program. Based on what everyone's shared, here's my plan of attack: 1) File the late forms tonight with e-filing, 2) Write a detailed reasonable cause letter emphasizing this was an oversight and my otherwise clean compliance record, 3) Get a signed statement from my contractor confirming they reported the income on their Schedule C, and 4) If needed, use one of those callback services to actually speak with an IRS agent. The $290 penalty hurts but it's not the end of the world, and it sounds like there's a good chance of getting it waived if I handle this properly. Thank you everyone for sharing your experiences - this community is amazing for situations like this where you're stressed and need real advice from people who've been there!

I went through this exact scenario about 18 months ago - forgot to file a 1099-NEC for a $7,200 contractor payment. I was absolutely panicking when I realized it during the following tax season, but it turned out way better than I expected! Here's what happened in my case: I immediately e-filed the late 1099-NEC with a reasonable cause letter explaining it was an honest oversight. I emphasized my clean compliance history and included a signed statement from my contractor confirming he had reported and paid taxes on the full amount. The initial penalty notice was $290, but I called the IRS and requested first-time penalty abatement. The IRS agent was surprisingly helpful and understanding. She reviewed my account, confirmed I had no prior penalties, and approved the abatement request on the spot. Got the confirmation letter about 3 weeks later showing the penalty was completely waived. Key takeaways: File immediately, be completely honest about the mistake, document your good compliance history, and don't be afraid to call and ask about penalty relief programs. The IRS is actually pretty reasonable when they see you're making a genuine effort to correct an honest mistake. You're going to be fine - the fact that you caught this and are fixing it right away shows good faith, which goes a long way with them!