1099 Requirements for LLC: Everything You Need to Know
The 1099 requirements for LLC entities are to give the IRS an information return. 3 min read
The 1099 requirements for LLC entities are to give the IRS an information return. The document serves as your business' evidence of the expenses or costs of hiring either one or more businesses, subcontractors, or independent contractors, who performed services for your business during a tax year. Also, 1099 states the total value of money paid or still outstanding for an active contract. An LLC's responsibilities as the giver of 1099s are significant, but on the payee's side of this tax document, income information provided gets used to calculate the contractor's taxable earnings.
Are There Different 1099 Types?
Due to the informative nature of a 1099, it may be necessary for the LLC to report figures for costs or expenses on a different 1099 to the IRS. There are different ones you can pick from when filing with the Internal Revenue Service for your business. A few of them include:
- 1099-MISC, and others
What Are the 1099 Requirements for LLC Payees?
If your business received services from an independent contractor who performed services adding up to at least $600, then you must send out a 1099 to that service provider. In issuing 1099s to a limited liability company, many business owners are not sure what requirements need to get met.
Keep in mind that an LLC elects its tax status. The IRS recognizes the chosen tax entity, then classifies and taxes the LLC as one of these:
- Sole proprietorship, or disregarded entity, or Type D
- Partnership, or Type P
- Corporation, or Type C
When an LLC, taxed as a sole proprietorship, receives a 1099, the statement will include:
- Name of the Type D LLC
- Name of the sole proprietor
- Social Security number for the sole proprietor, which gets recognized as his or her tax identification number
When issuing a 1099 to an LLC partnership, similar information gets sent to that of a disregarded entity. The information return needs to have the business name and its EIN, or employer identification number. A limited liability company that has elected to keep corporation status does not need a 1099. The statement gets replaced when working with Type C LLCs because these businesses have specific, rigid rules and forms required for reporting income to the Internal Revenue Service.
Few businesses may still give a limited liability company a 1099. However, since the IRS does not require one to get issued for LLC structures, sending one will have no other purpose than to make bookkeeping records simpler. Another significant rule for a 1099 concerns the transaction amounts paid when buying commercial products. Your business need not state any of the following merchandise transaction costs in a 1099:
- Delivery costs
- Postage fees
- The actual value of an item
Who Receives a 1099-MISC?
Often a business receives services throughout the year from providers who do not make up an entire company, but instead are independent contractors. Here, the 1099-MISC acts as the worker's W2 form. If a contractor does any work for your business which is billable at more than $600 within a year, your company will send the worker the 1099-MISC.
The 1099-MISC is the W-2 form of self-employment. Businesses send a 1099-MISC to any contractors who they have paid more than $600 during a tax year. Even though an LLC will not receive the IRS 1099-MISC, limited liability companies must send them out to any contractors they have hired.
There are exceptions to the rules for not having a 1099-MISC for an LLC and corporation when documenting costs calculated for any work done. The expenses that fall under the few specific categories listed below and require a business to send out a 1099-MISC include:
- Federal executive agency payments
- Dividend substitution or tax-exempt payments
- Purchasing fish
- Paying attorney fees or gross proceeds
- Health care or medical payments
Only if an LLC does one or more jobs billed at $600 or higher, and falls into any of the above types, will the company receive a 1099-MISC from the business that requested contract work. Keep in mind that although you will not get a 1099-MISC for a yearly payment total that is below $600, the individual contractor or business entity must still pay taxes on the amount earned for that tax year.
If you need help with 1099 requirements for an LLC, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Goole, Menlo Ventures, and Airbnb.