If you’ve been in business for a while, at some point you’ve probably paid an independent contractor to provide services for your business.

If you’ve paid an independent contractor $600 or more during one year, you may also know that you’re required to issue them a Form 1099-MISC and send a copy to the IRS.

Starting with the 2016 tax year, the IRS is moving up the due date for Forms 1099-MISC when you’re reporting non-employee compensation payments in box 7. The new due date is January 31st, and ignoring it could be catastrophic for your business.

Here’s why:

The penalties for filing Forms-1099 late, incorrect, or not at all, jumped last year. The new penalties are almost twice as high as they used to be.

So how bad can those penalties get?

Pretty bad, pretty quick.

If you’re just a little late (no more than 30 days) filing with the IRS or furnishing correct forms to your independent contractors, the penalty is $50 for each Form 1099, up to a maximum of $186,000 (unless your business has gross receipts greater than $5 million, then the maximum is $532,000).

If you file those forms at least 31 days late, but before August 1st, then the penalty jumps to $100 per form, with a max of $532,000 (the max is $1,596,500 for large businesses).

If you file after August 1st, or not at all, the penalty is $260 for each form, up to $1,064,000 (or $3,193,000 for large businesses).

And the penalty for failure to file with the IRS is separate from the penalty for failure to furnish to an independent contractor, so if you get busy and forget to do both, you can basically just double all those penalties from earlier.

Of course, the worst situation would probably be one where you got caught for Intentional Disregard of your 1099-MISC filing requirements. In that case, the penalty would be $530 (multiply that by two if you didn’t file with the IRS or furnish to your payee) for each Form 1099-MISC that you should have issued, but chose not to.

And there’s no maximum penalty for cases of Intentional Disregard.

Here’s an Example:

Imagine that your business is growing, and you feel like you’re running nonstop, 24-7, just to keep up with it.

You don’t have a dedicated bookkeeper yet, and you don’t even think about issuing 1099s until March rolls around and you start getting organized to file your own income tax returns.

Then you realize that you received a handful of 1099s from customers of your business and it hits you.

[Insert expletive of choice here]

You rush over to your laptop and dig into your accounting system so you can figure out how many 1099s you were supposed to issue, and find out that you paid $600 or more for services to 15 different independent contractors last year.

Since it’s March, and the deadline was January 31st, you’re more than a little late and the penalty is $100 per Form 1099.

$100 x 15 forms = $1,500 (Ouch!)

But since you didn’t file the forms with the IRS or furnish them to your contractors on-time, you’ll owe another $1,500 (Double Ouch!). Your grand total, assuming you get things taken care of prior to August 1st, is $3,000 in penalties.

At least you didn’t get busted for Intentional Disregard. The penalty for that would have been almost $16,000 (and that’s for only 15 Forms 1099. Can you imagine what the penalty would be like if your business had hundreds of independent contractors?).

So, if you haven’t already blocked off some time this month to make sure you get all your 1099s furnished and filed by January 31st, now could be a really good time to do that. And give yourself some lead time, because you’ll need to get copies of the forms that the IRS can scan into their system.

The IRS doesn’t accept Forms 1099-MISC that are printed from a PDF online. That means you’ll probably be ordering forms from the IRS, Amazon.com, or running over to Staples or Office Depot.

Most of the office supply stores sell bundles with software to enter your 1099 data, multiple copies of the 1099 forms (federal, state, recipient, etc.), window envelopes, and the Form 1096 that you’ll need to include with the 1099s you send to the IRS.

Here’s a tip I learned the hard way, years ago when I was a staff accountant:

Test your printer alignment and dial it in before you start printing to the actual forms.

Make sure that all your information fits in the right boxes, and, for the copies you’ll be furnishing to your contractors, check to make sure that their name and mailing address is visible when you put it in the envelope.

Now you know. And knowing is half the battle (Obviously, getting your 1099s filed on-time is the other half-So get to it!).

-Josh