question about incorrect 1099-misc income

[douginsd]

I work for a small company and my income is reported on 1099-misc.  Late in 2024 the company had cash flow problems and I didn't get paid for a couple months salary.  In January I adjusted my estimated tax withholdings to reflect the lower income for the year, and they issued me a 1099 to reflect the actual amount I was paid for 2024.  A few weeks later they paid me for the missing months, but now they've issued a new 2024 1099 with that income included, even though it wasn't paid until Feb 2025.  If I file with that income, I'll probably get penalized for under-withholding.  So my question is, can the company put income on a 2024 1099 form that wasn't paid until 2025?  And, if so, is there a way to explain to the IRS that my estimated taxes were done in good faith, but the company added income after the fact and after the deadline for 2024 estimated taxes, to avoid being penalized?

[KrisD15]

No, the company that issued the 2024 1099-MISC cannot report income that was not paid until 2025. 

If this was work you did as a sub-contractor, they should have used Form 1099-NEC, but no matter.

You may not have a penalty depending on your tax liability last year, however if you have documentation to prove that the funds were not made available to you before January 1, 2025, you could enter the 1099-MISC/1099-NEC and then make a miscellaneous expenses for the amount that was not received until 2025. 

Name it something like "2025 payment on 2024 1099" to make it clear to the IRS.

Next year be sure to include that same amount as income and again name it "2025 payment on 2024 1099" as the description of the income. 

IRS link When is income recognized 

[douginsd]

thanks for the reply, and you're right it was on form 1099-NEC.  I didn't have the form in front of me at the time and for some reason I thought it was 1099-misc.

[ThomasM125]

You can make the adjusting entry in TurboTax as follows:

1. From the Federal menu in TurboTax find Wages and Income 

2. Find Less Common Income

3. Choose Miscellaneous Income, 1099-A, 1099-C

4. Choose Other Reportable Income

5. Enter a description of the adjustment and the amount as a negative number

[douginsd]

I spoke with the company and they said since the company is on an accrual basis accounting and I'm on cash basis the reporting may be different between their side and mine.  

When I spoke with the IRS on it they suggested that I can put an explanation in with my tax form and use what I consider to be the correct information based on my filing taxes based on cash basis.  That sounds similar to what you suggested, except for the fact that I think you included it as income and then deducted it back with a miscellaneous expense.  If they don't correct it, I'll just report the actual income, enclose both 1099s, and an explanation of what happened.  Either way, I'll pay taxes on those earnings in 2025 eventually, so I don't know if the method I use will make any difference or not.  Do you have an opinion on which method would work best, or if they're both the same.

[KrisD15]

Whether the company you did work for is cash or accrual, they issue 1099's for payments made that year, not according to the accounting method they use. 

Regardless, any option you choose is fine.

The steps listed above will work, but what I do not like about those steps is the fact that the adjustment will be on your personal income, not the business income where it should be. That could change the QBI and Self-Employment tax calculation. Also, since we established that is a 1099-NEC, the adjustment on Schedule 1 won't have a match, we usually use that to adjust a 1099-MISC where the original 1099-MISC is also listed on the same line.

Including a statement is OK, but you would need to paper file the return as there is no way to include a statement using TurboTax. 

Again, I personally would opt for reporting the 1099 and expensing what wasn't received until 2025. That way the correct amount of BUSINESS income is reported on your Schedule C. It will also have the least effect on the time to file and have your return processed. 

As long as you're reporting the proper income, how you adjust for the 2025 funds listed on the 2024 1099 is your choice. 

[douginsd]

OK, thanks for all the suggestions so far.   I have one more piece of info I found from talking with the company.  They claim that the 1099s aren't actually sent to the IRS, I had assumed they were.  Is that info correct?  If they're not sent to the IRS, then I have one copy that has the correct info, one with incorrect info.  Can I just file with the correct one, and not have to explain anything?  Or will the IRS have actually seen the second one with the incorrect figures and wonder why my numbers don't match theirs.

[LeticiaF1]

That is not correct. Companies are required to file form 1099s with the IRS.  If they filed the first form and then changed it, the IRS will probably have the last form that was sent as the correct one.  

You should follow the advice from KrisD15 on how to enter the income on your return.  

@douginsd