Do S-Corporations Get 1099s? When to Receive vs. Issue

An S-corporation is a business entity that elects to pass its income, losses, deductions, and credits directly through to its shareholders for federal tax purposes. This means the business avoids paying federal income tax, as profits and losses are reported on the owners’ personal tax returns. Shareholders then pay taxes at their individual income tax rates, which can help avoid the double taxation sometimes associated with C-corporations. This election is made by filing Form 2553, Election by a Small Business Corporation, with the IRS.

Understanding 1099 Forms

Form 1099 is a series of tax documents used to report various types of income received outside of traditional employment wages. These forms help the IRS track income sources where taxes have not been withheld. Businesses, financial institutions, and other entities issue 1099s to individuals or businesses to report payments made during the tax year.

Common types of 1099 forms include Form 1099-NEC, which reports nonemployee compensation paid to independent contractors or freelancers, typically for payments of $600 or more. Form 1099-MISC is used for miscellaneous income, such as rents, royalties, or prizes, also generally for payments of $600 or more. Form 1099-INT reports interest income, and Form 1099-DIV reports dividends and distributions, usually when the amount is $10 or more. The payer is responsible for completing and sending these forms to both the recipient and the IRS.

When S-Corporations Receive 1099s

S-corporations generally do not receive Form 1099-NEC for services they provide. This is because the IRS does not typically require 1099-NECs to be issued to incorporated entities, as S-corporations are considered sophisticated entities capable of managing their own tax obligations, unlike sole proprietors or partnerships.

However, an S-corporation might receive other types of 1099 forms. For example, it could receive Form 1099-INT for interest income from bank accounts or financial instruments. If an S-corporation holds investments, it may receive Form 1099-DIV for dividend income or distributions. Form 1099-MISC might be issued for income such as rents or other miscellaneous payments. Additionally, if an S-corporation provides medical or legal services, it may receive a 1099-MISC or 1099-NEC if payments total $600 or more, as these are specific exceptions.

When S-Corporations Issue 1099s

An S-corporation, like any other business entity, must issue 1099 forms for certain payments it makes. If an S-corporation pays an individual or an unincorporated entity, such as a sole proprietor, partnership, or LLC taxed as one of these, $600 or more for services during the year, it must issue a Form 1099-NEC. This also applies to payments for rent, which are reported on Form 1099-MISC if $600 or more is paid.

To ensure accurate reporting, an S-corporation should request a Form W-9, Request for Taxpayer Identification Number and Certification, from any vendor or contractor it pays. This form provides the payee’s tax identification number and classification, helping the S-corporation determine if a 1099 is necessary. The deadline for S-corporations to furnish recipient copies of Form 1099-NEC is typically January 31 of the year following the payment. Filing with the IRS has different deadlines. Failure to issue required 1099 forms by the deadlines can result in penalties.

Reporting S-Corporation Income to Shareholders

S-corporations operate under a pass-through taxation model, meaning the business’s profits and losses are not taxed at the corporate level. Shareholders report their share of the S-corporation’s income, deductions, and credits on their personal income tax returns.

The S-corporation reports its financial activity to the IRS using Form 1120-S, U.S. Income Tax Return for an S Corporation. As part of this filing, the S-corporation prepares a Schedule K-1 for each shareholder, detailing their specific share of the corporation’s income, deductions, credits, and other items. Shareholders use this information to complete their personal tax returns (Form 1040). Shareholders do not receive 1099 forms for their share of the S-corporation’s operating profits, as this income is reported through the Schedule K-1. However, if a shareholder is also an employee, they receive a Form W-2 for their wages.