Why it matters
Noncompliance just got more expensive. A provision of the Trade Preferences Extension Act signed into law by President Barack Obama in late June increased the penalties under the Internal Revenue Code Sections 6721 and 6722 for returns and statements filed after December 31, 2015. The penalty provisions for Forms W-2 and 1099 jumped 150 percent: from $100 for a single incorrect return to $250, with the annual cap also doubled to $3 million from $1.5 million. For intentionally failing to file a return, the amount rose from $250 to $500. Of course, because there are two filing requirements for employers—returns must be filed with the Internal Revenue Service pursuant to Section 6721 while Section 6722 applies to returns that must be provided to employees—the actual cost of a single incorrect form will cost an employer $500. Employers should ensure that their filings are on time and accurate or face a steep price.
Penalties for incorrect information returns and statements filed with the federal government just got more expensive for employers. The Trade Preferences Extension Act, signed into law by President Barack Obama on June 29, included a provision doubling the applicable penalties.
Employers are required to file a Form W-2 for each employee from whom income, Social Security, or Medicare tax was withheld, as well as provide the form to their employees. Different types of 1099 Forms are required to be filed for each individual to whom the employer has made various distributions or payments.
Information returns or statements required to be filed after December 31, 2015 pursuant to Sections 6721 and 6722 of the Internal Revenue Code (IRC)—or the penalty provisions for Forms W-2 and 1099—now face twice the fine. Previously, the IRC stated that a single incorrect return would cost an employer $100, with an annual cap on all failures set at $1.5 million.
Now a single incorrect return will cost an employer $250, with an annual cap of $3 million. The penalty for intentionally failing to file a form jumped from $250 to $500.
However, these amounts are only half of what an employer could be liable for. For each employee, an employer is responsible for satisfying both Section 6721, by filing the applicable form with the Internal Revenue Service (IRS), as well as Section 6722, by supplying the form to the employee. Just one incorrect W-2 or 1099 could cost $500.
The penalty provisions certainly come into play when filing errors are made but could also cost employers in a settlement with workers. Employers bear the burden of complying with federal filing requirements and should ensure that the applicable forms are correctly filed or face even stiffer penalties (a possibility if additional forms are provided—to the plaintiff’s attorney, for example—increasing the fines yet again).
To read the Trade Preferences Extension Act, click here.