Help! Does an LLC Get a 1099?
If you've hired an LLC to do work for your business, you might be wondering whether you need to send them a 1099 form at tax time. This question confuses many business owners because the answer isn't a simple yes or no.
So, does an LLC get a 1099? The short answer: Sometimes you do, and sometimes you don't. It depends on how that LLC is classified for tax purposes.
You'll need to send a 1099 to an LLC if it's taxed as a sole proprietorship or partnership. But if the LLC is taxed as a corporation, you don't need to send one.
Don't worry if that sounds complicated! We'll break down everything you need to know to make the right decision and avoid problems with the IRS. For more support, learn more about our tax services.
What Is an LLC?
An LLC is a type of business that gives owners protection from personal liability, but it still allows for flexible tax options similar to partnerships or sole proprietorships.
When someone forms an LLC, they're creating a separate legal entity that protects their personal assets if the business gets sued or goes into debt. This is the "limited liability" part of the name - the owner's personal risk is limited.
What makes LLCs tricky for tax purposes is that they're flexible in how they can be taxed.
LLCs don’t have a fixed tax classification and can choose how they want the IRS to treat them:
A single-member LLC (with just one owner) is automatically taxed as a sole proprietorship unless it chooses otherwise
A multi-member LLC (with multiple owners) is automatically taxed as a partnership unless it chooses otherwise
Any LLC can elect to be taxed as a corporation (either a C-corporation or S-corporation)
This flexibility is great for the LLC owner, but it makes your job harder when deciding whether to send a 1099. You can't tell how an LLC is taxed just by knowing it's an LLC - you need additional information.
Learn about the pros and cons of an LLC vs. an S-Corp.
What Is a Form 1099?
A Form 1099 is a tax document that reports payments made to non-employees during the year. It's sometimes called an "information return" because its purpose is to inform the IRS about money that changed hands outside of a traditional employer-employee relationship.
There are several types of 1099 forms, but the one most relevant for paying LLCs is Form 1099-NEC (Non-Employee Compensation).
The IRS used to use the Form 1099-MISC for businesses to report money paid to contractors and service providers, but you now have to use the Form 1099-NEC for this type of reporting.
You generally need to file a 1099-NEC when:
You paid someone who isn't your employee
You paid for services (not goods or merchandise)
You paid at least $600 to this person or business during the tax year
You made the payment as part of your trade or business (not as a personal payment)
The purpose of these forms is to prevent income from "disappearing" for tax purposes. When you report paying someone on a 1099, the IRS knows that person or business should be reporting that amount as income on their tax return.
Learn more about how to know whether you need to send someone a 1099.
So, Does an LLC Get a 1099?
Whether you need to send a 1099 to an LLC depends on how that LLC is classified for tax purposes, not on the fact that it's an LLC. The legal structure (LLC) and tax classification (how the IRS treats it) are two different things.
To determine if you need to send a 1099 to an LLC, you need to know which tax classification they've chosen.
This information should be on the W-9 form that the LLC provides to you before you pay them. The W-9 form includes checkboxes that show whether the LLC is taxed as a sole proprietorship, partnership, S-corporation, or C-corporation.
The basic rule is that you need to send 1099s to LLCs that are taxed as sole proprietorships or partnerships, but not to LLCs taxed as corporations.
Let's take a closer look at each scenario.
Does a Single-Member LLC Get a 1099?
Yes, you generally need to send a 1099-NEC to a single-member LLC if you paid them $600 or more for services during the tax year.
A single-member LLC is an LLC with just one owner. By default, the IRS treats these LLCs as "disregarded entities" for tax purposes. This means the IRS ignores the LLC structure and treats the business as a sole proprietorship.
From a tax perspective, the business and the owner are considered the same entity. All business income passes through to the owner's personal tax return on Schedule C. This pass-through taxation is why you need to send a 1099 - the income doesn't get reported on a separate business tax return.
When filling out the 1099-NEC for a single-member LLC, you'll typically use the owner's name and Social Security Number (SSN) or the LLC's name and its Employer Identification Number (EIN), whichever they provided on their W-9 form (also known as the Request for Taxpayer Identification Number and Certification).
Does an LLC Partnership Get a 1099?
Yes, you generally need to send a 1099-NEC to an LLC taxed as a partnership if you paid them $600 or more for services during the tax year.
A multi-member LLC (an LLC with two or more owners) is automatically classified as a partnership for tax purposes unless it elects to be taxed as a corporation. When businesses are set up as partnerships, the business itself doesn't pay taxes. Instead, all profits and losses flow to each partner, who then reports their portion on their own personal tax return.
Even though a partnership files its own tax return (Form 1065), this is just an informational return. The partnership itself doesn't pay income taxes. Instead, each partner pays taxes on their share of the partnership income. This pass-through taxation is why you need to send a 1099.
When filling out the 1099-NEC for an LLC partnership, use the partnership's name and Employer Identification Number (EIN) as provided on their W-9 form.
Does an LLC S-Corp Get a 1099?
No, you don't need to send a 1099-NEC to an LLC that's elected to be taxed as an S-corporation, even if you paid them $600 or more for services.
The IRS considers S-corporations to be corporations, and corporations are exempt from 1099 reporting requirements. This exemption applies even though the income ultimately ends up on individual tax returns.
Does an LLC C-Corp Get a 1099?
No, you don't need to send a 1099-NEC to an LLC that's elected to be taxed as a C-corporation, even if you paid them $600 or more for services.
Corporations (both C and S) are specifically exempt from 1099 reporting requirements. This means you don't need to send 1099s to LLCs taxed as corporations.
When an LLC Does NOT Get a 1099
Even when an LLC would normally receive a 1099 based on its tax classification, there are several situations where you don't need to send one.
You do NOT need to send a 1099 to an LLC in these circumstances:
When you paid less than $600 during the tax year: The $600 threshold applies to the total amount paid during the entire year, not individual payments.
When you paid for products or merchandise instead of services: 1099s are only required for service payments, not for inventory, goods, or materials.
When you paid via credit card, debit card, or payment apps like PayPal, Venmo (business accounts), or Square. In these cases, the payment processor is responsible for reporting the transaction on Form 1099-K.
When you paid a tax-exempt entity like a nonprofit organization. These organizations should indicate their tax-exempt status on their W-9.
Plus, as we discussed earlier, corporations (both C-Corps and S-Corps) are exempt from the Form 1099-NEC requirements.
Common LLC Mistakes
If you're an owner of an LLC, make sure to avoid these common mistakes:
Misclassifying workers as independent contractors: One of the biggest mistakes businesses make is treating workers as independent contractors (including LLCs) when they should be classified as employees. If you control not just what work is done but how it's done, the worker might be an employee regardless of what you call them.
Missing filing deadlines: 1099-NEC forms must be furnished to recipients by January 31st and filed with the IRS by the same date. Missing these deadlines can result in penalties from the IRS.
Not collecting W-9 forms from vendors: Always collect a W-9 form before making your first payment to any vendor who might require a 1099. The W-9 will give you important information such as the vendor's tax classification, name, address, and taxpayer identification number. Without this information, you may not know whether a 1099 is required, and you won't have the necessary details to complete the form in the right way.
Incorrect reporting of payment amounts: Reporting incorrect payment amounts on 1099s creates problems for both the recipient and the Internal Revenue Service (IRS). Keep detailed records of all payments you make during the year.
Working with a tax professional helps you stay on top of all of your tax obligations and avoid making costly mistakes for your business.
FAQs
Are You Required to Send a 1099 to an LLC?
You're required to send a 1099-NEC to an LLC if they provided services worth $600 or more during the tax year AND they're taxed as either a sole proprietorship or partnership. Always check the LLC's W-9 form to determine their tax classification before deciding whether to send a 1099. Remember that you don't need to send 1099s to LLCs taxed as corporations (either S-corps or C-corps), and you don't need to report payments made via credit card, debit card, or third-party payment networks like PayPal, as these are reported in other ways.
How Do You Know If an LLC Gets a 1099?
You can figure out whether an LLC should receive a 1099 by looking at the W-9 form they provide before you pay them. On line 3 of the W-9, the LLC will indicate their tax classification by checking one of the boxes: Individual/sole proprietor, C Corporation, S Corporation, Partnership, etc. If they check "Individual/sole proprietor" or "Partnership," you'll need to send them a 1099-NEC for service payments of $600 or more during the year. If they check either corporation box, they're exempt from 1099 reporting.
Who Is Exempt From Receiving a 1099?
Corporations (both C-corps and S-corps, including LLCs that elect corporation status), payments made via credit card, debit card, or payment apps (these are reported on 1099-K by the payment processor), payments for products or merchandise (not services), tax-exempt organizations, and payments less than $600 in a year are exempt from 1099 reporting.
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