If you fail to file a correct information return (1099-MISC) by the due date and you cannot show reasonable cause, you may be subject to a penalty. The penalty applies if you fail to file timely, you fail to include all information required to be shown on a return, or you include incorrect information on a return. The penalty also applies if you file on paper when you were required to file electronically, you report an incorrect TIN or fail to report a TIN, or you fail to file paper forms that are machine readable.

The amount of the penalty is based on when you file the corrected information return. The penalty is:
$30 per information return if you correctly file within 30 days (by March 30th if the due date is February 28); the maximum penalty is $250,000 per year although it is only $75,000 per year if you meet the special definition of a small business.

$60 per information return if you correctly file more than 30 days after the due date but by August 1; the maximum penalty is $500,000 per year and $200,000 for a small business.

$100 per information return if you file after August 1 or you do not file the required information returns, maximum penalty is either $1,500,000 per year or $500,000 per year depending on whether you qualify as a small business.

There is no penalty to the contractor if you do not report the income on an information return but he is required to report all income, from whatever source, even if he does not get a 1099. He can be subject to penalties for under reporting of income.

You need to report it on 1099 Misc, and submit it.....when he does his return if it doesn't match up to what IRS as report by you his return will be rejected and he then has to deal with IRS....Cover your own butt and get it reported and turned in...the IRS/ Soc Sec copy!! What Mr Potts, wrote is true about the fines.