1-Step Correction
A 1-step correction is a direct correction of the original error in a single submission. This typically occurs when the form was filed incorrectly (e.g., wrong address, incorrect amounts) and the payer submits a corrected to replace the original one.
- When to use: A 1-step correction is appropriate when the error is simple, such as a misreported dollar amount or incorrect address, and no additional action is needed beyond submitting the corrected form.
- How it works:
- The payer will file a new corrected 1099 form, marking it as “Corrected.”
- The corrected form will be sent to both the IRS (or applicable state tax authority) and the recipient.
2-Step Correction
A 2-step correction is a more involved process used when there is an error that requires a two-part process to resolve. This typically occurs when the original error is more significant, such as the wrong TIN (Taxpayer Identification Number) or incorrect name.
- When to use: A 2-step correction is needed for more complex errors, such as the wrong TIN, incorrect name, or other significant discrepancies that could impact the IRS records or state tax filings.
- How it works:
- Step 1: A form is filed indicating the “voiding” or removal of the incorrect form.
- Step 2: The payer files a “corrected” 1099 form to address the mistake, but it is marked as “Corrected.”
Understanding the difference helps ensure that your corrections are properly processed by the IRS or state tax authorities and that your recipients’ information is accurate.
