Common Mistakes in W2 and 1099 Filing — And How to Avoid Them
Tax season is stressful enough without the added burden of correcting filing mistakes that could have been avoided. Whether you’re a small business owner, an HR manager, or a payroll specialist, knowing how to handle W2 and 1099 filings properly can save you time, money, and even legal trouble. In this guide, we’ll break down the most common errors made during the W2 and 1099 filing process—and more importantly, show you how to avoid them.
Misclassifying Workers: Employee or Contractor?
One of the most critical filing errors businesses make is misclassifying workers. The IRS treats employees and independent contractors very differently, and using the wrong form—W2 for employees, 1099 for contractors—can result in hefty fines and back taxes.
Why It Happens:
Businesses may classify workers as contractors to avoid paying employment taxes, intentionally or by mistake. The lines can get blurry, especially with freelancers or project-based workers.
How to Avoid It:
Review the IRS guidelines on worker classification or use the IRS Form SS-8 to determine the correct status. If the company controls how, when, and where the worker does the job, they’re likely an employee and should receive a W2.
Missing or Incorrect Taxpayer Identification Numbers (TINs)
A missing or wrong TIN—whether it’s a Social Security Number (SSN) for employees or an Employer Identification Number (EIN) for contractors—can delay processing and trigger IRS penalties.
Why It Happens:
Sometimes it’s just a typo. Other times, businesses fail to collect the correct TINs ahead of time.
How to Avoid It:
Use Form W-9 to request accurate information from contractors and double-check all employee SSNs against official documentation. Consider using the IRS TIN Matching Program before filing.
Filing Late or Not at All
Filing forms after the deadline—or not filing them at all—is a common pitfall that can lead to fines ranging from $60 to $310 per form, depending on how late they are filed.
Why It Happens:
Businesses often wait until the last minute or forget the separate deadlines for submitting forms to workers and the IRS.
How to Avoid It:
Mark your calendar with these key deadlines:
- January 31: Deadline to send W2s and 1099-NECs to workers and file them with the IRS.
- February 28 (paper) / March 31 (electronic): Deadline for 1099s other than NECs.
Not Using the Correct Form
There are several versions of the 1099 form—NEC, MISC, INT, DIV, etc.—each used for different payment types. Filing the wrong one can confuse the IRS and lead to processing delays.
Why It Happens:
Lack of understanding about form differences or changes in IRS regulations.
How to Avoid It:
Stay updated with IRS announcements. For example, since 2020, businesses must use Form 1099-NEC (not MISC) for reporting nonemployee compensation. If you’re unsure, consult with a tax professional or reliable software that guides form selection.
Incorrect Dollar Amounts
Whether it’s underreporting or overreporting, inaccuracies in the amounts you report can flag your business for audit and trigger penalties.
Why It Happens:
Data entry errors, miscalculated wages or payments, or failing to include reimbursements or bonuses.
How to Avoid It:
Reconcile your payroll reports, accounting software, and bank records before filing. Run a final audit to ensure the numbers match across all systems.
Omitting State Information
Many states require additional reporting beyond the federal submission. Neglecting this step could result in state-level penalties.
Why It Happens:
Assuming federal filing covers all obligations or overlooking state-specific regulations.
How to Avoid It:
Research your state’s requirements or use a filing service that handles federal and state submissions automatically. For example, California and New York have specific electronic filing mandates.
Sending Paper Forms When Electronic Filing Is Required
The IRS requires businesses filing 10 or more information returns to submit them electronically. Failing to do so can result in the forms being rejected altogether.
Why It Happens:
Unawareness of the electronic filing mandate or reliance on outdated filing methods.
How to Avoid It:
Use IRS-authorized e-filing software or third-party providers. Make sure your filing method complies with current IRS thresholds and formatting requirements.
Forgetting to Include All Reportable Payments
Some businesses forget to report all the payments that qualify for 1099 filings—especially small payments or those made via platforms like PayPal or Venmo.
Why It Happens:
Manual processes that overlook smaller transactions or confusion about third-party payment platforms.
How to Avoid It:
Track all payments throughout the year, not just at tax time. Maintain accurate vendor records, and clarify whether third-party settlement entities will issue a 1099-K instead of your business needing to file.
Not Filing Corrections Promptly
If you’ve already made a mistake—such as a wrong TIN or dollar amount—ignoring it won’t make it go away. Failing to file corrections quickly can worsen the situation.
Why It Happens:
Lack of awareness about the correction process or delay in gathering correct information.
How to Avoid It:
As soon as you detect an error, file a corrected return using the proper IRS form. Be sure to label the corrected form accurately and inform the employee or contractor of the update.
Poor Recordkeeping
Disorganized or missing records can lead to mistakes when preparing W2s and 1099s. This includes missing W-9s, time logs, or incomplete payment data.
Why It Happens:
Failure to update systems regularly or relying on manual recordkeeping.
How to Avoid It:
Implement a digital document management system to keep all payroll, tax, and vendor data accessible and up to date. Automate where possible to reduce the risk of human error.
Not Delivering Forms to Workers on Time
Providing forms to employees or contractors late can lead to dissatisfaction, delays in personal tax filings, and potential legal complaints.
Why It Happens:
Overload during tax season or delays in form preparation.
How to Avoid It:
Prepare and send out forms well in advance of the January 31 deadline. Consider using electronic delivery methods, with proper consent, for faster distribution.
Misunderstanding Backup Withholding Rules
If you receive a W-9 with a blank or incorrect TIN, you may be required to withhold a percentage of payment (currently 24%) and report it to the IRS.
Why It Happens:
Not recognizing when backup withholding rules apply or failing to act on them.
How to Avoid It:
Always review completed W-9s for accuracy and completeness. If the IRS notifies you of a mismatched TIN, begin backup withholding immediately and keep clear documentation.
Not Verifying Software Accuracy
Using outdated or unverified tax software can result in miscalculated data or incorrectly formatted forms.
Why It Happens:
Businesses stick with what they’ve always used or choose low-cost tools without checking compliance standards.
How to Avoid It:
Choose IRS-approved software or services that guarantee compliance. Look for automatic updates to tax codes, TIN matching tools, and error-checking features.
Overlooking the De Minimis Safe Harbor Rule
If you’re correcting an error of $100 or less ($25 for withholding tax), you may not need to file a corrected form under the IRS’s de minimis safe harbor rule.
Why It Happens:
Unfamiliarity with small error thresholds or concern over overreporting.
How to Avoid It:
Understand how the safe harbor rule works and when it applies. This could save time and paperwork if minor corrections are unnecessary.
Relying Too Heavily on Manual Filing
Manually entering information can lead to typos, inconsistencies, and missed deadlines—especially when dealing with multiple forms.
Why It Happens:
Smaller businesses may feel they don’t need filing software or want to save on costs.
How to Avoid It:
Even small businesses can benefit from automation. Use tools or W2 and 1099 Filing Services that handle the data flow from accounting to submission, minimizing room for error.
Final Thoughts: How to Stay Compliant and Confident
W2 and 1099 filings may seem straightforward, but the reality is that even small mistakes can spiral into big issues. From misclassifying workers to missing deadlines, the risks of filing errors are real—and they’re preventable. Staying up to date with IRS rules, using modern filing tools, and practicing proactive recordkeeping can help your business stay compliant and efficient.
Outsourcing these tasks can be one of the smartest moves you make, especially if your team is stretched thin during tax season. With the right partner, you’ll gain peace of mind knowing that your filings are accurate, timely, and IRS-compliant.
Properly handling your W2 and 1099 filings is crucial for compliance and avoiding penalties. Biz File Go offers comprehensive filing services, ensuring your employee and contractor tax forms are prepared and submitted accurately. Our expert team manages all the necessary documentation and submissions, freeing you to focus on your core business operations. Trust Biz File Go to keep your tax filings in order and on time.
click here to visit website for more interesting collection of articles
