If a business fails to electronically file information returns such as Forms W-2 or 1099 when required, the IRS may impose penalties under IRC Section 6721. These penalties apply to returns that are not filed electronically, filed late, or contain incorrect information.
Penalty amounts can be charged per return and may increase based on how late the filing is. At higher tiers, penalties can reach hundreds of dollars per return, with annual maximum limits that vary based on business size. Smaller businesses are subject to lower annual caps.The exact penalty amounts are adjusted periodically, so the total liability depends on when the return is filed and the size of the business.
In some cases, businesses may qualify for a hardship waiver if they can demonstrate significant difficulty in meeting the electronic filing requirement.
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Check your EIN confirmation letter (CP 575) first. If that is gone, look at a previously filed tax return, a business bank account application, or any 1099 you have issued. Your bank or your payroll provider will also have it on file.
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