Key Takeaways

  • Whether you issue a 1099 to an LLC depends on how the LLC is taxed—disregarded entity or partnership status typically requires a 1099, while corporations generally do not.
  • LLCs taxed as corporations are exempt unless the payments fall under specific exceptions (e.g., legal fees or medical services).
  • A Form W-9 should always be requested before issuing a 1099 to confirm tax classification.
  • Payments made for merchandise, utilities, or to tax-exempt organizations generally do not require a 1099.
  • Deadlines for filing and issuing 1099s are strict, and penalties apply for late or inaccurate forms.

Do you 1099 an LLC? The answer to this question is complex. An LLC, or limited liability company, is considered a pass-through entity for taxation purposes. Although many believe that the C stands for corporation, an LLC is not necessarily a corporation (though it can be treated as such for tax purposes). An LLC that instead opts to be taxed as a partnership (the default) must receive a 1099-MISC form if it receives more than $600 in payment for services or rent.

Disregarded Entity

A disregarded entity is an LLC that does not elect tax treatment as a corporation. A single-member LLC is automatically considered a disregarded entity and does not need to file a separate tax return. The LLC owner reports business revenue and expenses on his or her personal tax return.

The 1099 Information Return

IRS Form 1099 is used to report money or benefits paid to an independent contractor, a sole proprietor, a partnership, an estate, or an attorney who is not employed by the LLC. This form is considered an information return by the IRS. The entity that issues the 1099 uses it to report costs and expenses for tax purposes, while the entity that receives the 1099 includes it as taxable income. Payments made for personal reasons, and not during the course of regular business, should not be reported on a 1099. A tax attorney can provide more guidance on this matter.

1099 Classifications

The most common 1099 classifications include:

  • 1099-MISC for rental income, royalties, and other miscellaneous payments
  • 1099-S for transactions involving real estate
  • 1099-DIV used for distributions of capital gains and dividends

Issuing Requirements

Under IRS guidelines, an individual, estate, trust, corporation, or partnership is defined as a person. The structure of a business entity defines whether it should be issued a 1099. An LLC can opt to be treated as either a sole proprietorship (disregarded entity), partnership, or corporation by the IRS for tax purposes. 

If you are paying an LLC taxed as a disregarded entity, a 1099 is required. This document must include the sole proprietor's name and Social Security number as well as the name of his or her LLC. If the LLC is taxed as a partnership, the owner must receive a 1099 with the business name and employer identification number (EIN), which serves as a Social Security number for taxation. An LLC that elects corporation tax status does not receive a 1099, unless the payment in question is for health care, the purchase of fish, attorney fees, in lieu of dividends, or a tax-exempt interest payment made by a federal agency.

LLCs do not receive 1099 forms for merchandise transaction costs, including postage, delivery, storage, and the cost of the item itself. Wages do not require a 1099 since they are reported on Form W-2, with the exception of business travel funds, life insurance premiums, and payments made to organizations that are tax-exempt.

When You Don’t Need to Issue a 1099 to an LLC

There are several scenarios where issuing a 1099 to an LLC is not required:

  • LLCs taxed as C or S Corporations are typically exempt from receiving a 1099 unless the payment relates to:
    • Legal services
    • Medical or healthcare payments
    • Fish purchases for resale
    • Substitute dividends or tax-exempt interest paid by brokers
    • Payments made by federal executive agencies
  • Merchandise-related payments, including goods, storage, freight, postage, and delivery services, are also excluded from 1099 reporting obligations.
  • Tax-exempt organizations do not receive 1099s for payments, as long as they maintain their exempt status.

Before assuming exemption, always verify the LLC’s status using a completed Form W-9, which will indicate whether the business is treated as a corporation for tax purposes.

Filing Requirements

You must send eligible recipients their 1099-MISC forms before Jan. 31 of the year after payments were made. You must file copies of all 1099-MISC forms along with Form 1096 by Feb. 28 of the year they were issued, or by March 31 for electronic filing.

If you are an LLC owner, you should expect to receive your 1099 within a week after it was issued. You must report all 1099 income to the IRS or risk underreporting penalties. 

Penalties

If you submit a late, incomplete, or incorrect 1099-MISC to the IRS, you are subject to a penalty of $30 per form within one month of the due date, $60 after one month but before August 1 of the year in question, and $100 after August 1. 

Form W-9

LLCs should submit Form W-9 to customers and clients to facilitate the receipt of a 1099 that contains the correct information. You will only receive a 1099 if you provided services above $600. The W-9 includes the legal name of your business, its address, tax ID number, and your signature.

Tips for Avoiding 1099 Filing Errors

To avoid 1099 filing errors that could result in penalties or IRS scrutiny:

  • Always request a Form W-9 before making payments to vendors or contractors. This ensures you have accurate tax classification and TIN (Taxpayer Identification Number).
  • Double-check tax treatment on the W-9—look for checkboxes that indicate whether the LLC is a disregarded entity, partnership, or corporation.
  • Track cumulative payments—you’re only required to file a 1099 if payments to a qualifying recipient exceed $600 in a calendar year.
  • Use e-filing when possible to meet deadlines efficiently and reduce the chance of clerical mistakes.
  • Maintain backup documentation for all vendor payments and W-9s in case of an audit or dispute.

Being diligent in record-keeping and verification can help businesses remain IRS-compliant while avoiding common 1099 pitfalls.

Frequently Asked Questions

  1. Do you issue a 1099 to an LLC taxed as a corporation?
    No, unless payments are for legal, medical, or other specified services exempt from the corporate exclusion.
  2. What happens if I issue a 1099 to a corporation by mistake?
    There’s no penalty for issuing a 1099 unnecessarily, but it’s best to avoid it by confirming tax status via Form W-9.
  3. Does a single-member LLC get a 1099?
    Yes, if it is a disregarded entity and not treated as a corporation for tax purposes.
  4. Can I avoid 1099 penalties by filing electronically?
    Electronic filing helps reduce errors and meet the IRS's March 31 e-filing deadline, minimizing the chance of incurring penalties.
  5. Should I issue a 1099 for product purchases?
    No. Payments for goods, inventory, or tangible merchandise are not subject to 1099 reporting requirements.

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