Do LLC Get 1099: Everything You Need to Know
If you're wondering “Do LLCs get 1099s?” the answer depends on the type of business structure.3 min read
2. Sole Proprietorships and Partnerships
3. When Do Business Owners File a 1099 for Contractors?
4. What if You File a 1099 for an LLC that Doesn't Require One?
Updated October 27, 2020:
If you're wondering “Do LLCs get 1099s?” the answer depends on the type of business structure. In general, sole proprietorships may need to file these, but corporations do not. However, there are exceptions, so understanding the laws pertaining to taxes can help make sure you follow some very important rules.
About Form 1099
The IRS form 1099 details money or other benefits paid to any of the following:
- Independent contractor.
- Individual or business that's provided services to the company or is owed money by the company.
The form is classified as an “information return.” Payees use the form to calculate taxable income, while issuers use it to document expenses and costs for the IRS.
Business owners have to file form 1099 as a record of payments they made to independent contractors over the course of the tax year. If a business buys or rents products or services that amount to more than $600 from one person or LLC during the year, it has to file a 1099 for that contractor or vendor.
Business owners only have to report payments for services or rent that were earned for business purposes; they don't have to report payments that were made for personal reasons.
The 1099 is similar to a W-2 for employee wages. The IRS has proof of income that can be confirmed on the individual's tax return.
Sole Proprietorships and Partnerships
If an LLC operates as a sole proprietorship, it has to file a 1099 with specific information required by the IRS. Required information includes the following:
- Sole proprietor's name.
- LLC's name.
- Proprietor's social security number, which may act as a tax identification number.
For LLCs that operate as partnerships, the 1099 has to include the business name along with the Employer Identification Number, or EIN.
When Do Business Owners File a 1099 for Contractors?
A 1099 form is typically intended for individuals to file when they provide services or goods to a company. Sole proprietors may not operate as a business entity, but the company might still file the 1099 for them. In this case, the contractor is filing as an individual without a business structure.
It can be more complicated when a contractor does business as an LLC, however. Unfortunately, there's no cut-and-dried answer to the question “Do LLCs get 1099s?” because not every LLC gets the same tax treatment.
If a contractor files taxes as a single-member LLC, he or she is a “disregarded entity,” meaning all income goes through the individual's tax return. In this case, a manager or member of a company can file a 1099 for that person since, for tax purposes, the LLC is treated as a “person.”
For contractors that operate and file taxes as corporations — such as a C-corp. or S-corp. — for tax purposes, they're treated as corporations, so in general, they don't get a 1099.
What if You File a 1099 for an LLC that Doesn't Require One?
Contractors may sometimes check the incorrect box on their W-9 or fail to file in time. If your company isn't sure if a contractor should receive a 1099, it's usually better to err on the side of caution and file a 1099. You won't be penalized if you file an “extra” 1099 for a contractor who doesn't require it.
However, if you fail to file 1099s for contractors who were supposed to receive them, you run the risk of being penalized by the IRS, to the tune of $100 for every 1099 that wasn't filed.
You should always try to make sure any contractors your company uses are clear about their tax status. You should keep their W-9s with your business records. Even if you don't have to file a 1099 for a contractor who didn't require it, your company remains covered either way, so you can avoid costly penalties.
Tax law can be complicated, and some questions don't have easy or clear answers. When it comes to business structures, it can be especially complex. To avoid expensive penalties and fines, however, it's usually best to do more than necessary instead of less. You can get more information at the IRS site if needed.
If you need help with 1099s or other tax issues, 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 Google, Menlo Ventures, and Airbnb.