Tax & Accounting Blog

Ask the Expert: If a payee returns prior-year money to you, do you have to “correct” the 1099-MISC you issued for that prior year?

1099, ONESOURCE, ONESOURCE Nonresident Alien Taxation, Tax Information Reporting May 3, 2013

If a payee returns prior-year money to you, do you have to “correct” the 1099-MISC you issued for that prior year?

Answer from Marianne Couch of COKALA Tax Information Reporting Services:
This question came up in several different contexts recently. An overpayment of royalties was returned to the payer by personal check; an overpayment of an insurance claim was sent back to the payer; a repair shop appeased its business customer by writing a check to refund an overcharge. In each case the original payment amount was included on a Form 1099-MISC reported to the IRS, but in the following year when a partial refund or repayment was made to the payer, the original payee wanted the prior-year 1099 “corrected” to shown a lower dollar amount, net of the amount eventually returned to the payer. Can the payer make that change to the prior-year 1099-MISC? No. Forms 1099-MISC are calendar-year reports, and the original amount had actually been received in the prior year by the payee who had full use of it. Once year-end closes you cannot adjust amounts reported in the previous 1099-MISC unless due to your own administrative error; that is, you paid one amount and by mistake incorrectly reported a different amount.

Any refund from a payee to a payer after the year paid becomes a tax return adjustment in the payee’s tax return, but not a 1099-MISC adjustment. The recipient should consult a tax adviser and the income tax instructions. For the payer, however, receiving a refund of amounts reported in a previous year will never reduce the 1099-MISC reportable amounts of any payments in the year repaid. The only time that a payer may reduce the 1099-MISC reported amount is if the refund to the payer comes in the same year that the original payment is made.

About Marianne:
Marianne Couch, JD Principal, Cokala Tax Information Reporting Solutions, LLC Marianne Couch, JD, of the Cokala Tax Group, is an advisor on U.S. federal and state tax information reporting compliance. She is a frequent lecturer at major tax conferences and the author of numerous published articles and the Master Guide to Form 1099 Compliance. Prior to co-founding the Cokala firm in 2007, she served for many years as Research Director of Balance Consulting, and chaired special training and advisory services provided to large organizations and academic and nonprofit institutions. She was previously the executive director of the National Association of Form 1099 Filers, Inc., and a member of the IRS Information Reporting Program Advisory Committee (IRPAC), where she served as Cha! ir of the IRPAC Subcommittee on Small Business and Self-Employed (SBSE) tax issues.

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