Do S Corps Get a 1099? Rules for Issuing and Receiving

An S corporation (S Corp) is a business entity that allows income, losses, deductions, and credits to pass directly to its shareholders for federal tax purposes. This structure helps businesses avoid the double taxation often associated with traditional corporations. Shareholders then report these financial items on their personal tax returns. Form 1099 is an information return used by the Internal Revenue Service (IRS) to report various types of income other than wages, salaries, and tips. It informs both the recipient and the IRS about payments made for services, rents, interest, or other specific categories, ensuring income is tracked for tax compliance.

When an S Corporation Receives Form 1099

An S corporation can receive various types of Form 1099 for income it earns. While S Corps generally do not receive Form 1099-NEC or 1099-MISC for services they provide, exceptions apply. For instance, if an S Corp provides legal or medical services and receives payments of $600 or more, it will be issued a 1099.

Common scenarios where an S Corp might receive a 1099 include payments for services rendered as an independent contractor, rental income, or certain types of investment income. For services, an S Corp might get a Form 1099-NEC if the payer paid $600 or more. If the S Corp receives miscellaneous income, such as rents or prizes, it might receive a Form 1099-MISC. Interest income from bank accounts or investments is reported on Form 1099-INT, and dividends on Form 1099-DIV.

Regardless of whether a 1099 form is received, an S corporation is required to report all its income on its tax return, Form 1120-S. The 1099 forms serve as a record of income received and should be used to verify the information when preparing the S Corp’s tax filings. This ensures accurate reporting to the IRS, even if a 1099 was not issued or was issued incorrectly.

When an S Corporation Issues Form 1099

An S corporation has specific obligations to issue Form 1099 for certain payments made in its trade or business. These payments typically involve non-employee compensation to independent contractors, rents, and legal fees. Generally, an S Corp must issue a 1099 if it pays an individual, partnership, or an LLC taxed as a sole proprietorship or partnership $600 or more for services in a calendar year. Payments to corporations, including other S Corps, usually do not require a 1099, with the exception of payments for legal services.

A crucial step for issuing 1099s is obtaining a completed Form W-9, Request for Taxpayer Identification Number and Certification, from each payee. This form collects essential information such as the payee’s legal name, address, and Taxpayer Identification Number (TIN), necessary for accurate 1099 preparation. Requesting a W-9 before making payments helps ensure compliance and prevents potential issues with mismatched information later.

The process of preparing Form 1099 can be done using accounting software, IRS fillable forms, or by engaging professional tax preparers. For Form 1099-NEC, the deadline for issuing copies to recipients and filing with the IRS is January 31 of the year following the payment year. For most other 1099 forms, such as 1099-MISC, the deadline for providing copies to recipients is also January 31, but the filing deadline with the IRS is February 28 for paper filing or March 31 for electronic filing. If filing paper 1099s, an S Corp must also file Form 1096, Annual Summary and Transmittal of U.S. Information Returns, which acts as a cover sheet. Electronic filing is generally required if an S Corp files 10 or more information returns of any type.

Important Considerations for S Corporation 1099 Compliance

Maintaining accurate and comprehensive records for all payments made and received is important for S Corporation 1099 compliance. This recordkeeping supports the proper preparation and filing of all required information returns. Records help verify payment amounts and payee information, which is necessary for tax reporting.

Failure to comply with 1099 reporting requirements can result in IRS penalties. These penalties can arise from late filing, failure to file, or filing incorrect information. Penalty amounts vary depending on how late the forms are filed and the number of incorrect forms, with higher penalties for intentional disregard of the rules.

It is important for S corporations to distinguish between independent contractors, who typically receive 1099s, and employees, who receive Form W-2. Shareholder-employees of an S corporation generally receive W-2s for their services, rather than 1099s. This distinction is important for proper tax treatment and compliance.

S corporations can establish clear payment policies and utilize reliable accounting software. These tools can help automate recordkeeping and streamline the 1099 preparation process. For complex situations or specific guidance, consulting with a tax professional can help ensure all obligations are met.