Does an S-Corp Get a 1099? The Definitive Answer
Tax season often brings madness for small business owners, especially when it comes to understanding forms and requirements set by the IRS.
One question that often comes up is, "Does an S-Corp get a 1099?". Get comfortable, grab your favorite beverage, and let's break down the relevant rules and best practices so you can navigate tax season with confidence.
What Is an S-Corp?
First things first, what is an S-Corp? An S Corporation, also known as an S-Corp, is a special type of corporation that allows for pass-through taxation and other tax advantages.
It provides your business with the limited liability protection of a corporation, but you can report income on your personal tax return. The S corporation status can also help you save on the self-employment tax. Learn more about S-Corp taxes.
What Is a 1099 Form?
A 1099 Form is a tax document that the Internal Revenue Service (IRS) uses to track income payments that don't come from regular wages.
You may have used a 1099 Form in the past to report payments made in exchange for freelance services, rental income, or certain types of miscellaneous income.
Common Types of 1099 Forms
There are different types of 1099 Forms. Each of them serves a specific purpose. Here are some of the most common ones:
1099-MISC: Reports miscellaneous income, such as rent, prizes and awards, cash payments for fish and other aquatic life, and other income payments.
1099-NEC: Reports nonemployee compensation, typically paid to independent contractors.
1099-INT: Reports interest income.
1099-DIV: Reports dividends and distributions.
1099-B: Reports proceeds from broker and barter exchange transactions.
1099-R: Reports distributions from pensions, annuities, retirement plans, and more.
Small business owners typically deal with the 1099-NEC Form.
Form 1099 vs. W-9: What's the Difference?
Both Form 1099 and Form W-9 play a role in the tax reporting process, but they serve different purposes.
The Form 1099 - particularly The Form 1099-NEC - is used to report various types of income to the IRS. In turn, the Form W-9 is used to request the taxpayer identification number (TIN) of a payee.
When a business hires a contractor or service provider, they typically request a W-9 to collect the necessary information to issue a 1099 Form.
Form 1099-MISC and Form 1099-NEC
Two of the most commonly used 1099 Forms are Form 1099-MISC and Form 1099-NEC. Many business owners get confused about the differences between these two forms.
Form 1099-MISC: Use this form to report miscellaneous income, including rent, prizes, and awards. It was used to report nonemployee compensation before, but that changed in 2020.
Form 1099-NEC: Use this form to report nonemployee compensation. This includes payments made to independent contractors and freelancers.
Learn more about 1099 Forms.
So, Does an S-Corp Get a 1099?
The short answer is generally no.
According to IRS regulations, payments made to a corporation, including an S-Corp, don’t typically require a 1099 form. This is because S corporations are responsible for their own tax reporting.
However, there are exceptions to this rule. Certain types of payments still require a 1099, even if the recipient is an S-Corp.
Exceptions to the Rule
Most payments to S-Corps are exempt from 1099 reporting, but there are specific exceptions:
Legal Services: Payments for legal services must be reported on Form 1099 even if the law firm is structured as a corporation.
Medical and Health Care Payments: Payments for medical and health care services must be reported on Form 1099 even if the provider is an S-Corp.
Fishing Boat Proceeds: Proceeds from the sale of fish for cash must be reported regardless of whether the recipient is a corporation.
Failing to comply with 1099 regulations can result in penalties for your S-Corp. If you're confused, consult with a tax professional to start navigating tax season with more ease and expertise.
Issuing Form 1099
An S-Corp typically doesn't receive a 1099, but you're required to issue 1099 forms to any non-corporate service provider or independent contractor to whom they pay $600 or more during the tax year.
Here's a step-by-step explanation of how it works:
Identify the non-corporate service providers or independent contractors your S-Corp has paid $600 or more during the year. This includes designers, social media managers, copywriters, and more.
Request a completed Form W-9 from each service provider. This form will give you their name, address, and taxpayer identification number. For international contractors or service providers, you'll have to use Form W-8.
Complete the appropriate 1099 form (typically Form 1099-NEC) for each qualifying payment. Include the provider's information and the total amount paid during the year.
Submit the completed 1099 forms to the IRS by the required deadline, typically January 31st. You should also send a copy to each service provider for their records.
Don't confuse the 1099 MISC Form with the Form 1099-NEC. The Form 1099-MISC was used to report non-employee compensation, but that changed in 2020.
Best Practices for Small Business Owners
Issue Form 1099 On Time
Issue 1099 forms on time to avoid IRS penalties. Track all payments throughout the year and issue the forms by the January 31st deadline. Learn more about sending someone a 1099 Form.
Keep Accurate Records
Recording your transactions helps with tax compliance. Record all payments made to vendors and service providers and store invoices and receipts. Consider hiring a bookkeeper if you can't keep up with keeping your business records.
Consult with a Tax Professional
Trying to navigate your numbers and IRS requirements by yourself can give you a giant headache - not to mention you could end up paying way more in taxes than you actually owe.
Consult with a tax professional to comply with all regulations and keep more of your hard-earned money.
Does an LLC S-Corp Get a 1099?
An LLC that has elected to be treated as an S-Corp for tax purposes follows the same rules as any other S-Corp when it comes to 1099 forms.
Generally, they don’t receive a 1099, but the same exceptions apply. Payments for legal or medical services as well as fishing boat proceeds must still be reported on a 1099.
Find Clarity in Tax Season with Desi Tax®
Tax season doesn't have to be stressful. At Desi Tax®, we help small businesses and S-Corps understand their financial situations and tax obligations so they can find clarity and start saving money.
