1099 for S Corporation: Everything You Need to Know
A 1099 for S corporation is a crucial form that employers must use when they hire independent contractors. Form 1099-MISC reports payments issued to a contractor or service provider. 3 min read
A 1099 for S corporation is a crucial form that employers must use when they hire independent contractors. Form 1099-MISC reports payments issued to a contractor or service provider. A 1099-MISC helps individuals and businesses report income on their personal tax returns, while affording the IRS a mechanism to track income.
In addition, the IRS uses 1099 forms to assess how much independent contractors should pay in self-employment taxes. Because independent contracts are technically considered business owners, they must report and pay their own taxes, whereas W-2 employees have their taxes withheld by employers.
You must be aware of several different 1099 forms, but the most common one is 1099-MISC. A company and owner that issues payment to contractors must report such compensation to the IRS and give a copy of it to the contractor.
Moreover, the contractor should retain a copy for record-keeping purposes.
You should also be aware of 1099-K. Such a form is for electronic payments, including payments via credit cards to the contractors. In addition, third-party settlement groups usually use the form to note payments. With that, the reporting line for 1099-Ks is higher than 1099-MISCs. Moreover, third-party settlement groups must issue 1099-Ks after 200 transactions occur, including payment issuances of more than $20,000.
When it comes to reporting, payments should be $600 or greater regarding services rendered, and the transaction should not involve goods. In addition, the services must be conducted on matters pertaining to business. For instance, you hire a contracted employee for $20,000 to remodel your home. You do not need to issue a 1099-MISC document because the work involved a personal project, which is your home. With that, you would issue a 1099-MISC form if that contactor remodeled your office space.
Additionally, you do not need to issue a 1099-MISC form to S and Corp corporations. With that, be aware of the following exceptions:
- Healthcare and medical payments (ex. pre-employment physical checks-ups)
- Cash purchases for fish
- Lawyer fees
- Gross proceeds to attorneys (ex. legal settlements)
- Substitute payments pertaining to tax-exempt interest or dividends
- Payments issued by a federal agency regarding services
When to Send 1099s
1099-MISCs need to be sent to sole-owner LLCs or a single-person Ltd. With that, LLCs treated as an S or C corp do not need 1099-MISCs. Keep in mind the following:
- Sole Proprietor: Send a 1099-MISC
- LLP/Unincorporated Contractor/Partnership: Send a 1099-MISC
- LLCs designated as a C or S Corp: Send a 1099-MISC
When it comes to filing a 1099-MISC, you need important pieces of information about the contractor. You may get such information from a W-9 form, a document which the contractor completes before completing work or services. You should report the following information on a 1099-MISC:
- Contractor legal name
- Business name (Only if it differs from the contractor name)
- If a business entity is a sole-member LLC, then it must be disregarded when it comes to information reporting. Therefore, you would need to input the company name on Line Two, and the single-owner name would be placed on Line One
- Federal tax classification of contractor
- Exemption Codes: Another aim of Form W-9 form is to record a payee’s work status as exempt if an eye test may not be used. For instance, an incorporated entity that uses the word “Company” instead of “Inc.” would need Form W-9 to assess an entity’s status for exemptions on information reporting.
- Tax ID Number: Can also be a SSN or EIN
Regarding 2017 payments, businesses should send 1099-MISCs to contractors by Jan. 31 of the previous year. Companies should also issue 1099-MISC copies to the IRS, and the IRS deadline is Jan. 31, regardless of whether you submit via mail or electronically. The deadlines also pertain to Form 1099-MISC upon reporting non-employee compensation in Box 7. Otherwise, paper registration should be filed with the IRS by Feb. 28, with online filing by March 31.
You should also note that your state may have various mandates and deadlines regarding 1099 reporting. In addition, you should discuss your situation with a professional to better understand the filing requirements in your state.
To learn more about a 1099 for S corporation, submit your legal inquiry to our UpCounsel marketplace. UpCounsel lawyers will help your establish a 1099 system to all contractors you hire, and what you need to do to remain compliant under IRS tax guidelines. Also, they will help you issue 1099-MISCs on time, including any other 1099 documents you would need to send to contractors.