What to do when there is an error
Because unfortunately, this is not an unusual situation for home health agencies! The 1099-MISC received by HHAs is incorrect more often than what one would think!
Form 1099-MISC is a tax form that is used to report all non-employee compensation for the calendar-year. Any organization or employer that pays independent contractors at least $600- during the year should issue a 1099-MISC to each independent contractor (non W-2 compensation) by January 31st of the following year (with limited exceptions). Therefore, most HHAs will both issue and receive 1099s each year. Following is a blank copy of the 2017 1099-MISC:
Issuing the 1099-MISC
As an employer, an agency would be required to complete and submit a 1099-MISC for all contractors that they engage with to provide services on behalf of the HHA; with few exceptions. So your HHA would issue a 1099-MISC to each individual or organization that provides services on your behalf that you paid $600- or more in compensation to during the prior year.
The use of independent contractors is not uncommon in the home health industry; with the use of contracted therapists (PT, OT & ST) being the most prevalent. However, just about all tasks that can be completed by employees can be completed by contractors. One significant issue that does exist under this area though is whether the individual actually qualifies as an independent contractor. There are Dept. of Labor (DOL) and IRS issuances and guidelines to help identify qualifications. A general rule of thumb here is that if the individual is of a level/status that would require supervision of that individual were they an employee (e.g. LPN, PTA, COTA, HHA/CNA, etc…), they would generally not qualify to be treated as an independent contractor. There is significant potential liability to the agency that has incorrectly identified these individuals; but that is a subject for another day.
So the 1099s that the agency issues each year should comprise all the compensation paid to the independent contractors. The amount reported on these 1099s should equal the total compensation paid to each. Therefore, the amount reported on the 1099-MISC to any independent contractor should be specifically reconcilable to the agency’s financial records.
Receiving & Reconciling 1099s from Payors
HHAs can receive 1099s also. These will represent the amount of compensation that you received from any/each payor throughout the year. This is what that organization is reporting to the IRS as compensation that they paid to you during that year.
Generally, that should be it. Unfortunately, much too often, it is not!
For most HHAs that receive 1099s, there are discrepancies with their 1099s! Quite often there is more compensation reported on this form than what the HHA actually received from that payor. In fact, this is more the norm, than the exception to the rule regarding Medicare compensation. The 1099-MISC that many, if not most HHAs receive from their FI/MAC are overstated. In this case, the FI/MAC will have identified more on the 1099 than the HHA will have received throughout the year.
Everyone should compare the amount identified on their 1099s with the amount of compensation that they received (and this should include all forms of pmt received from the payor: cash, check, EFT, etc…). For example, agencies’ that receive their compensation via EFTs, would just compare their bank deposits (summed together by payor) with the amount identified on their 1099. If they agree, there is nothing more to do, but if they do not, there is potentially a problem. Check your deposits again, and if they do not equal to the amount reported on the 1099-MISC, then you do have a problem. I am not sure why the FI/MACs have such a hard time calculating total compensation paid. It may have to do with ‘takebacks’ and ‘denials’; but as these are amounts that ultimately are not paid to you, they should not be included!
Therefore, it is imperative that you check the amount reported on your 1099s immediately upon receipt.
What you should do when you identify a discrepancy
There are generally two actions you can take:
- Contact the remitter ASAP and request a corrected 1099 (I’d even recommend that you identify for them what the amount should be). I would recommend calling first, but if that does not work, send a letter. In that letter, I would also recommend that you request that if they do not agree with you that they provide a reconciliation of all the payments that equal the total amount that they paid you for the year (don’t expect it; but request it).
- If after step 1 you still feel the 1099 amount is in error, contact the IRS in early March (Phone #: 800-829-1040)
Explain to the IRS that you received an incorrect 1099-Misc and that you have unsuccessfully tried to address this with the payor. This will enable to the IRS to:
- contact the payor directly to try to get a corrected 1099-MISC from that payor (and maybe get an idea of just how big an issue this is for our industry); and
- adjust their records so that they are not looking for you to report more revenues than you actually received for the year
Remember, a copy of the 1099-MISC that they sent to you was also sent to the IRS and the IRS wants to be sure that all reportable, taxable revenue is reported on your tax return.
Note: Keep a log of all calls and a copy of all letters as part of your tax return file for future reference. As we should know all too well in home health:
If it wasn’t documented, it didn’t happen!