IRC Section 6722 penalties apply when a business fails to furnish a correct payee statement, such as a W-2 or 1099, to the recipient by the required deadline. For statements due in 2026, the penalty runs from $60 to $340 per statement depending on how quickly you fix the problem, and it climbs to $680 or more per statement when the IRS finds the failure was intentional. A separate penalty under Section 6721 covers the copy owed to the IRS itself, so a single botched form can trigger both.
2026 Penalty Amounts by How Late the Fix Arrives
The penalty follows a three-tier structure that rewards quick corrections. Revenue Procedure 2024-40 sets these per-statement rates for filers with average annual gross receipts above $5 million, for statements required to be furnished in 2026:
- Corrected within 30 days of the due date: $60 per statement, capped at $683,000 for the year.
- Corrected after 30 days but on or before August 1: $130 per statement, capped at $2,049,000.
- Not corrected by August 1, or never furnished at all: $340 per statement, capped at $4,098,500.
Only one Section 6722 penalty is imposed per statement, even if that statement has several errors. If a single statement has failures that would fall in different tiers, the higher tier controls.
The economics here are stark. A company that catches a batch of incorrect 1099s in mid-February and reissues them within 30 days pays $60 per form. The same company waiting until September pays nearly six times that, against a cap almost six times higher. Catching errors fast is the single most valuable thing you can do.
Lower Caps for Small Businesses
If your average annual gross receipts for the three most recent tax years were $5 million or less, you qualify for reduced annual ceilings. The per-statement amounts don’t change, but the total the IRS can collect in a year drops significantly:
- Corrected within 30 days: $60 per statement, $239,000 annual cap.
- Corrected by August 1: $130 per statement, $683,000 annual cap.
- Not corrected by August 1: $340 per statement, $1,366,000 annual cap.
Even at these reduced ceilings, a small operation furnishing a few thousand statements with a systematic error can reach six figures fast.
When the Penalty Jumps for Intentional Disregard
An intentional disregard finding changes the math entirely. For 2026, the minimum penalty per statement rises to $680, but the actual amount is the greater of $680 or a percentage of the amount that should have been reported on the statement. That percentage is 10% for most payee statements and 5% for certain brokerage and partnership-related forms.
More importantly, all of the annual caps disappear. The reduced-penalty tiers, the de minimis exception, and the small-business ceilings stop applying. A business that deliberately fails to furnish statements reporting large dollar amounts can face a penalty tied to a percentage of those payments with no upper limit.
The IRS weighs several factors in deciding whether a failure was intentional: whether you knew about the reporting requirement and chose to ignore it, whether there is a pattern of repeated failures across years or large numbers of statements, whether you moved to correct the problem promptly, your prior compliance history, and whether you appear to have concluded that paying the penalty was cheaper than complying. That last factor is worth taking seriously. If the IRS believes a business ran the numbers and treated the standard penalty as an acceptable cost of doing business, that finding alone can lift the caps and turn a manageable bill into an open-ended one.
Errors the IRS Won’t Penalize
Not every mistake triggers a penalty. Under Section 6722(c)(3), a statement with an incorrect dollar amount is treated as correct if no single reported amount is off by more than $100 and no single withholding amount is off by more than $25. When both conditions are met, no corrected statement is required and no penalty applies.
A separate, narrower de minimis exception under Section 6722(c)(1) covers other types of errors corrected by August 1. It is capped at the greater of 10 statements or one-half of one percent of all statements you were required to furnish that year. For a company furnishing 4,000 statements, that means up to 20 forms.
The dollar-amount safe harbor is not absolute. A payee can elect in writing to require a corrected statement even for a small error. The election must go on paper to the filer’s address shown on the statement, must include the payee’s name, address, TIN, and the statement types it covers, and stays in effect for future years until revoked. Ignoring a valid election puts the standard Section 6722 penalty back on the table.
Reasonable Cause: The Main Defense
Section 6724(a) waives the penalty if you can show the failure was due to reasonable cause and not willful neglect. You have to prove two things: that circumstances beyond your control contributed to the failure, and that you acted responsibly both before and after it happened.
Acting responsibly means taking the steps a reasonably careful business would take. The regulations look for a pattern: you requested extensions when trouble was foreseeable, you tried to prevent problems you could anticipate, you moved to fix errors as soon as you found them, and you corrected the failure within 30 days of removing whatever obstacle caused it. Meeting only one of these usually isn’t enough.
Events the IRS recognizes as potential reasonable cause include fires and natural disasters, the death or serious illness of a key employee, system failures that prevented timely filing, and inability to obtain records needed to prepare the statements. A clean prior compliance record or being a first-time filer of a particular form helps, though neither guarantees a waiver. Documentation carries most of the weight: hospital records, disaster declarations, system-outage logs, and copies of correspondence with payees all strengthen the claim.
For failures involving a missing or incorrect TIN, the regulations add a specific requirement. You must show you followed the prescribed TIN solicitation procedures, meaning the initial and follow-up requests to the payee. Without that record, a reasonable cause argument for a TIN-related penalty is very difficult to make.
If You Receive Notice 972-CG
The IRS proposes Section 6722 penalties on Notice 972-CG. You have 45 days to respond in writing, or 60 days if you’re overseas. Miss that window and the penalty is assessed automatically, which makes reversal much harder.
You have three options:
- Agree fully and pay, or sign a consent for the IRS to bill you.
- Agree in part, pay what you accept, and contest the rest.
- Disagree entirely and submit a written explanation with documentation.
A reasonable cause request must identify the specific statutory provision you’re relying on, lay out the supporting facts, carry your signature, and be made under penalties of perjury. Treat it as a sworn declaration, because that is what it is. If you need more time to pull records, ask; the IRS generally grants an additional 30 days, and in some cases up to 90 days from the original notice date.
Practical Steps to Avoid the Penalty
The furnishing deadlines are what start the penalty clock. For the 2025 tax year, statements furnished in early 2026:
- Form W-2 to employees: January 31, 2026.
- Form 1099-NEC to recipients: January 31, 2026.
- Most other 1099 forms: generally February 15, 2026, with some later dates depending on the form.
If you know you’ll miss a deadline, fax Form 15397 (Application for Extension of Time to Furnish Recipient Statements) to the IRS Technical Services Operation before the original due date. An approved extension typically adds up to 30 days, though W-2 extensions are usually limited to 15 days unless you can show a clear need for the full 30.
The mistakes that most often produce Section 6722 penalties are avoidable: transposing digits in a TIN, using an outdated address that causes statements to come back undeliverable, reporting payments under the wrong form type, and missing payees who were added late in the year. A year-end reconciliation process that verifies TINs through the IRS TIN Matching program, confirms mailing addresses, and cross-checks payment totals before statements go out will catch most of them before the penalty ever attaches.