What to Do If Your Form 1099-NEC Overstates Your Income and How to Fix It

Receiving a Form 1099-NEC that shows more income than you actually earned can cause serious headaches. You might end up paying more taxes than you owe or face confusing IRS notices. This issue often happens when a business reports payments based on when they made the payment, not when you actually received the money. For example, if you did work in December but got paid in January, the business might include that payment on the previous year’s 1099-NEC. Legally, that’s incorrect and can lead to overstated income on your tax return.

Fixing errors on a 1099-NEC can be tricky once the form is issued. If you find yourself with an overstated income on your 1099-NEC, here’s a clear plan to handle the situation and avoid tax problems.

Why 1099-NEC Income Overstatements Happen

The Form 1099-NEC reports nonemployee compensation, such as payments to freelancers, contractors, or self-employed individuals. Businesses are required to send this form to the IRS and the payee to report payments made during the tax year.

Sometimes, businesses report payments based on when they issue the check or make the transfer, not when the payee actually receives the funds. This can cause income to be reported in the wrong tax year. For example:

• You completed a project in December 2023 but were paid in January 2024.

• The business includes that January payment on their 2023 1099-NEC.

• Your 2023 1099-NEC shows income you didn’t receive until 2024.

  
  

This mismatch can lead to you reporting income you never received in that tax year, increasing your tax bill unnecessarily.

Step 1: Request a Corrected 1099-NEC from the Payor

The first and best step is to ask the business that issued the 1099-NEC to correct the form. A corrected 1099-NEC will show the accurate amount of income for the tax year.

When requesting a correction:

• Be polite but clear about the mistake.

• Explain that the IRS requires income to be reported in the year it was received, not when it was paid.

• Provide any supporting evidence, such as bank statements or payment receipts showing the actual payment date.

• Reference IRS guidelines that support your request.

  
  

If you need help drafting this request, tax professionals or resources from the IRS can guide you on how to phrase it effectively.

Step 2: Report the Full Amount and Offset the Overstatement

If the payor refuses or delays issuing a corrected 1099-NEC, you still need to file your tax return on time. In this case, report the full amount shown on the 1099-NEC to avoid triggering an IRS mismatch notice.

Then, you can reduce your taxable income by claiming the overstatement as an expense. Here’s how:

• Report the income as stated on the 1099-NEC.

• Include an “Other Expenses” line on your Schedule C (or appropriate form) for the amount of income you did not receive.

• Attach a brief explanation with your tax return stating why you are offsetting the income. For example, explain that the payment was received after year-end and provide documentation.

  
  

This method helps you avoid IRS penalties or audits while accurately reflecting your true income.

Step 3: Keep Detailed Documentation

Documentation is your strongest defense if the IRS questions your income reporting. Keep records such as:

• Bank statements showing the date you received the payment.

• Copies of checks or electronic payment confirmations.

• Email correspondence with the payor discussing payment timing.

• Any letters or requests you sent asking for a corrected 1099-NEC.

  
  

If you receive an IRS notice, this documentation will support your case and help resolve the issue faster.

Example Scenario

Imagine you are a freelance graphic designer. You completed a project in December 2023 but received payment on January 10, 2024. The client sends you a 1099-NEC for 2023 showing the payment, even though you didn’t get the money until 2024.

You contact the client and ask for a corrected 1099-NEC. They decline. You file your 2023 tax return reporting the full amount from the 1099-NEC. Then, you claim an “Other Expense” deduction for the payment amount, explaining that you received the payment in 2024. You keep your bank statement and emails as proof.

This approach keeps your tax return accurate and reduces the risk of IRS issues.

What to Do If You Receive an IRS Notice

If the IRS sends a letter about a mismatch between your reported income and the 1099-NEC, respond promptly. Provide copies of your documentation and a clear explanation of the situation. If needed, consult a tax professional to help you communicate with the IRS.

Final Thoughts

An overstated 1099-NEC can cause unnecessary tax payments and stress. The best solution is to get the payor to issue a corrected form. If that’s not possible, report the income as stated and offset the overstatement with proper documentation and explanation. Keeping detailed records will protect you if the IRS questions your return.

Taking these steps helps you report your income accurately, avoid IRS penalties, and keep your tax filing on track.