Key Takeaways

  • Most S Corporations, including LLCs taxed as S Corps, do not receive Form 1099-MISC or 1099-NEC unless specific exceptions apply.
  • You must still issue a 1099 to attorneys and for medical and healthcare payments, even if the recipient is an S Corporation.
  • Whether an LLC receives a 1099 depends on how it is taxed: single-member LLCs generally do; LLCs taxed as corporations generally do not.
  • Proper classification using IRS Form W-9 helps determine if a contractor should receive a 1099.
  • Penalties for misfiling or failing to issue 1099s can be steep, making compliance critical.

Do LLC S corporations get a 1099? Knowing whether or not your LLC gets a 1099, or what the proper tax documents are for your particular business, can be one of the scariest things about being a business owner. After all, there is so much to keep track of as a business owner, such as receipts, deductible expenses, and keeping track of which tax documents to file.

However, it is one you will need to be mindful of, as failure to file the appropriate forms can result in some pretty hefty fees which your company will have to pay. Also known as the Form 1099-MISC, this is a form that is needed to be filed with the Internal Revenue Service for a business’s vendors and contractors.

What Is the Form 1099?

The IRS classifies the Form 1099 as an “information return,” meaning that it is providing the agency with information regarding what you paid to your company’s independent contractors and who those contractors are. As such, it essentially serves the same purpose as the W-2 that would be filed by an employee, but as independent contractors are not classified as employees of the company, that particular form is irrelevant.

The business serves as the issuer of the Form 1099 and uses it as a means of showing expenses to the IRS, while the contractor is the payee, using the form as a means of demonstrating their taxable income. Generally speaking, a business is not required to file a 1099 regarding contractors to whom less than $600 was paid. Additionally, it is not required to provide 1099 for payments regarding personal matters, only professional ones.

While independent contractors may not receive a Form 1099 for payments under $600, you may still be required to pay taxes on it, so maintain your own books without just relying on receiving the necessary documents from clients.

In addition to the Form 1099-MISC, which is the one typically used by businesses, there is also:

  • Form 1099-DIV. This form is used for capital gains and dividend distributions.
  • Form 1099-S, which is used for real estate transactions.

The penalties for not filing the proper forms can vary, but they can definitely add up, causing a great deal of financial strain on your business. Fines can run between $30 to $100 per form, depending upon how far past the filing deadline you are. Additionally, if you or your company appear to simply be ignoring the filing requirements, then you can be hit with a minimum fine of $250, while the IRS can ultimately increase that amount as much as they want, as there is no maximum penalty.

When Are S Corps Required to Receive a 1099?

In general, businesses are not required to issue Form 1099-NEC or 1099-MISC to entities taxed as S Corporations. This rule applies whether the business is a corporation or an LLC electing S Corp status. The IRS provides an exception to this rule under specific circumstances. You must issue a 1099 in the following situations:

  • Attorney payments: All legal service payments over $600 must be reported on a 1099-NEC, regardless of whether the attorney operates as an S Corporation.
  • Medical or healthcare payments: If you pay more than $600 to a provider for medical services (even if the provider is an S Corp), issue a 1099-MISC.
  • Substitute payments or payments by federal executive agencies also require 1099 reporting even for corporations.

These exceptions ensure the IRS receives critical information in areas known for underreporting. Always double-check with IRS guidelines or a tax professional if uncertain.

Additional Information

If you are dealing with independent contractors who work as sole proprietors, then the issues of the Form 1099 are pretty cut and dry. You will provide them with their 1099, as they are then filing their own taxes as individuals. Unfortunately, if your contractor has their own LLC by which they do business, it is not so easy; it will essentially boil down to what type of LLC they are.

If established as a single-member LLC, they file their taxes as an individual, so you will provide them with the Form 1099. However, if your independent contractor has their business established as a corporation (either an S Corp or a C Corp), then for tax purposes, they would be considered as such, and would not typically be filing Form 1099s. While you could still go ahead and issue a Form 1099 to a corporation, it would really only be for the purposes of your own record-keeping, as it would not be needed by the corporation for their own tax or filing purposes.

It is important that Form 1099 contains all of the correct information as required by the IRS. That information includes:

  • The name and the Social Security Number of the payee (independent contractor).
  • If the contractor is an LLC who files their taxes individually, you will need the name of the LLC, along with their Employer Identification Number, which is also known as the EIN.

How IRS Form W-9 Determines 1099 Requirements

Before deciding whether to issue a 1099, businesses often request that contractors complete IRS Form W-9. This form provides the business with the contractor’s:

  • Name or business name
  • Tax classification (e.g., sole proprietor, C Corporation, S Corporation)
  • Taxpayer Identification Number (TIN)

If the contractor marks “S Corporation” or “C Corporation” as their classification, the business generally does not need to issue a 1099—except in the cases of attorneys or healthcare providers. In contrast, if the contractor selects “individual” or “single-member LLC,” a 1099 is typically required for payments exceeding $600.

It’s critical to retain W-9s as part of your documentation process to avoid errors and penalties.

Penalties for Incorrect or Missing 1099s

Failing to issue a required 1099 can result in financial penalties. These penalties are based on how late the form is submitted:

  • $60 per form if filed within 30 days of the deadline
  • $120 per form if filed more than 30 days late but before August 1
  • $310 per form if filed after August 1 or not at all

Intentional disregard of 1099 filing requirements can lead to a minimum fine of $630 per form, with no upper limit. Ensuring accurate classification of payees and timely filing is vital to avoiding these hefty penalties.

Frequently Asked Questions

  1. Do I need to send a 1099 to an S Corporation?
    Generally, no. S Corporations are exempt from receiving 1099s, except in specific cases like legal or healthcare services.
  2. Does an LLC taxed as an S Corp get a 1099?
    No, LLCs taxed as S Corporations are treated the same as traditional S Corporations and typically do not receive 1099s unless an exception applies.
  3. What if I send a 1099 to an S Corp by mistake?
    Issuing a 1099 unnecessarily is not penalized, but it may confuse the recipient and require correction. It’s better to avoid issuing one unless it’s required.
  4. How do I know a contractor’s tax classification?
    Request a completed Form W-9 from the contractor. It will indicate whether the entity is a corporation, individual, or another classification.
  5. Are attorneys always issued 1099s, even if they’re corporations?
    Yes. Payments to attorneys must be reported on Form 1099-NEC, regardless of whether they are structured as an S Corporation or C Corporation.

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