The potential for incorrect IRS Forms 1099 creates significant tax worry, as these forms directly impact your reported income. While income reporting is mandatory, 1099s serve as a reminder and summary. Incorrectly high figures on a 1099 can be particularly alarming.  

Information reporting has long been a critical tool in IRS enforcement, and accuracy is crucial for both taxpayers and the IRS. But what happens when you receive a Form 1099 that significantly misreports your income?

Scenario: Substantial Reporting Discrepancy

Imagine you’re a consultant who earned $30,000 in 2024, but the 1099 you receive in January 2025 erroneously shows $300,000. This type of error can have profound implications for your tax liability and potential IRS scrutiny. What should you do? Your first step should be to act without delay. Approach the issuer with documentation showing the correct payment amount and request that they reissue the 1099 with the accurate figures.     

Request a Correction for an Incorrect Form 1099

Forbes contributor Robert Wood wrote about this topic and advises that you should contact the issuer immediately if you receive an incorrect Form 1099. If the issuer acknowledges the error, they may be able to void the incorrect form and issue a corrected one. To protect yourself, keep written records of all communications and request a letter confirming the correction. For example, if a Form 1099 was mistakenly issued for $300,000 instead of $30,000, the letter should state that the incorrect form was destroyed and a new one was issued correctly. This documentation can be helpful in case the form with incorrect payment info was still transmitted to the IRS.

In many cases, by the time you realize the mistake, the IRS has already received the incorrect Form 1099. If this happens, request a “corrected” Form 1099 from the issuer. A corrected form will reflect the accurate amount and will have a designated checkbox indicating the correction. Once processed, the corrected form should override the original in the IRS system.

But what if the issuer refuses to cooperate or insists their figures are correct? In that case, you may need to explain the discrepancy directly on your tax return.    

You must address incorrect 1099s on your tax return

Addressing an incorrect 1099 on your tax return requires both reporting and documentation. Report the full amount shown on the 1099, and then provide a clear statement or footnote explaining the error, including the correct income. For example, if a 1099 shows $300,000, but you received $30,000, document the discrepancy as follows: Erroneous 1099-NEC $300,000, Less error amount $270,000, Net to line 21 $30,000.  

The IRS suggests that If taxpayers can’t get a corrected Form 1099-K, report the information on Schedule 1 (Form 1040), Additional Income and Adjustments to Income PDF, as follows:

• Part I – Line 8z – Other Income – Form 1099-K Received in Error.
• Part II – Line 24z – Other Adjustments – Form 1099-K Received in Error.

The net effect of these two adjustments on adjusted gross income would be $0.

Reporting an incorrect 1099 increases audit risk, but ignoring it guarantees an audit

To avoid potential audit issues, address incorrect 1099s on your return. Suing the issuer is rarely successful, and the IRS won’t get involved. Instead, proactively detail 1099 information in contracts and settlement agreements. Remember, lawsuit settlements are typically taxable, and wording is critical.