Do S Corps Get 1099s? Issuing and Receiving Rules

IRS Form 1099 is a series of information returns used by the Internal Revenue Service to report various types of income other than wages, salaries, and tips. These forms play a significant role in tax compliance by documenting payments made by businesses and individuals to non-employees. The general purpose of a 1099 form is to ensure that income received by independent contractors, freelancers, and other service providers is accurately reported to the IRS. An S corporation, a business structure that passes income, losses, deductions, and credits through to its shareholders for federal tax purposes, also interacts with these reporting requirements.

When an S Corporation Must Issue 1099 Forms

An S corporation, as a business entity, has specific obligations to issue 1099 forms when it makes certain payments in the course of its trade or business. These payments primarily involve compensation for services rendered by non-employees, such as independent contractors or freelancers. The general rule mandates reporting if the total payments to a single payee reach $600 or more within a calendar year.

The most common form an S corporation will issue is Form 1099-NEC, specifically for Nonemployee Compensation. This form is used to report payments for services performed by someone who is not an employee. For instance, if an S corporation hires a freelance graphic designer, an IT consultant, or a marketing consultant and pays them $600 or more for their services during the year, a 1099-NEC must be issued.

Other types of payments may require an S corporation to issue a Form 1099-MISC (Miscellaneous Information). This form is used for various payments that are not nonemployee compensation, such as rents paid for office space or equipment, royalties, prizes, and awards. For example, if an S corporation rents commercial property from an individual or an unincorporated entity and the annual rent exceeds $600, a 1099-MISC is necessary.

To fulfill these reporting requirements, an S corporation must obtain a Taxpayer Identification Number (TIN) from each payee. This is typically done by requesting the payee to complete and submit a Form W-9, Request for Taxpayer Identification Number and Certification, before payments are made. The W-9 provides the necessary information, including the payee’s name, address, and TIN (which could be a Social Security Number or an Employer Identification Number), ensuring accurate reporting to the IRS.

When an S Corporation May Receive 1099 Forms

Generally, S corporations are exempt from receiving most 1099 forms, including 1099-NEC or 1099-MISC, due to their corporate status. This is because corporations are subject to their own stringent reporting requirements, and their income is generally tracked through their corporate tax returns.

Despite this general corporate exemption, there are specific exceptions where an S corporation would indeed receive a 1099 form. These exceptions exist to ensure proper tracking of certain payments for tax enforcement or industry-specific reasons. For instance, payments for legal services, such as attorney fees or gross proceeds paid to an attorney, must be reported on a 1099 form, even if the legal service provider is an S corporation.

Similarly, payments made for medical or health care services are another notable exception. If an S corporation provides medical or health care services, the payer is generally required to issue a 1099 form for payments of $600 or more, regardless of the S corporation’s status. Other exceptions include payments made by federal executive agencies and payments for fish purchases for resale.

Even if an S corporation does not receive a 1099 form for income it earned, it remains fully obligated to report all its income on its tax return. The absence of a 1099 does not negate the income, and the S corporation must accurately account for all revenue received from various sources. This ensures comprehensive income reporting to the IRS, irrespective of whether an information return was issued by the payer.

Complying with 1099 Reporting Requirements

Effective compliance with 1099 reporting requirements begins with diligent preparation throughout the year. S corporations should consistently gather necessary information, such as completed W-9 forms, from all non-employee service providers and vendors at the outset of their engagement. Maintaining accurate records of all payments made to these entities is essential for efficient year-end reporting.

When it comes time to prepare the forms, S corporations can utilize accounting software, which often has built-in capabilities for generating 1099s, or they can prepare them manually. The forms require detailed information about the payer and the recipient, including names, addresses, and taxpayer identification numbers, along with the total amount paid during the calendar year.

Adhering to strict deadlines is crucial to avoid potential penalties. S corporations must furnish recipient copies of Form 1099-NEC to payees by January 31 of the year following the payment. The deadline for filing Form 1099-NEC with the IRS is also January 31. For Form 1099-MISC, recipient copies are generally due by January 31, while filing with the IRS is typically due by February 28 if filing by paper or March 31 if filing electronically. If any of these dates fall on a weekend or holiday, the deadline shifts to the next business day.

S corporations have several options for filing 1099 forms with the IRS. They can mail paper forms, often accompanied by Form 1096, Annual Summary and Transmittal of U.S. Information Returns, which acts as a cover sheet. Alternatively, electronic filing through the IRS FIRE (Filing Information Returns Electronically) system or third-party services is available and often required for businesses filing a certain number of returns, typically 10 or more.

Should an error be discovered after a 1099 form has been filed, it is important to promptly file a corrected 1099. The IRS has established procedures for correcting errors, which usually involve submitting a new form with a “corrected” indicator. Correcting mistakes in a timely manner helps maintain compliance and can prevent potential issues for both the S corporation and the payee.