Do You Have to Send a 1099 to an LLC?

The IRS Form 1099 is a federal tax document used to report various types of income paid to non-employees. Businesses issue these forms to individuals or entities they pay for services. This reporting helps the IRS track income not subject to traditional wage withholding. The 1099 series encompasses different forms for specific payment types.

Determining 1099 Requirements for LLCs

Businesses need to issue a Form 1099-NEC for payments of $600 or more in a calendar year to an independent contractor for services performed in the course of trade or business. An exception exists for payments made to Limited Liability Companies (LLCs) taxed as C corporations or S corporations, as these payments do not require a Form 1099.

To determine an LLC’s tax classification, businesses should request a completed IRS Form W-9, “Request for Taxpayer Identification Number and Certification,” from the payee. The W-9 form allows the LLC to indicate its federal tax classification, including whether it is taxed as a C corporation or S corporation. If the LLC checks the box for C or S corporation on the W-9, a 1099 is not required for service payments.

Gathering Necessary Information for 1099 Reporting

Before issuing a Form 1099, gather specific information from the payee LLC. This information includes the full legal name of the business, its complete business address, and its Taxpayer Identification Number (TIN). For most LLCs, the TIN will be an Employer Identification Number (EIN), though a Social Security Number (SSN) may be used for single-member LLCs treated as disregarded entities.

This information is collected using IRS Form W-9. Businesses should request a completed W-9 from the LLC at the beginning of their business relationship, ideally before any payments are made. Collecting this form early ensures all necessary details are available for accurate year-end reporting. The specific type of 1099 form required depends on the nature of the payment, such as Form 1099-NEC for non-employee compensation or Form 1099-MISC for rents or other miscellaneous income.

Completing and Submitting Form 1099

After gathering all necessary information, businesses must enter it onto the correct Form 1099. This involves entering the payer’s information, the recipient LLC’s details, and the total payment amount. For non-employee compensation, the amount is entered in Box 1 of Form 1099-NEC.

Businesses can submit Form 1099 to the IRS either electronically or by paper. Electronic filing is required if filing 10 or more information returns in a calendar year, and is encouraged for fewer forms. Paper filing requires sending Copy A of the form to the IRS and filing Form 1096, “Annual Summary and Transmittal of U.S. Information Returns,” as a cover sheet. A copy of the 1099 form (Copy B) must also be provided to the recipient LLC. The deadline for both IRS submission and providing copies to recipients for Form 1099-NEC is January 31 of the year following the payment.

Understanding Penalties for Non-Compliance

Failure to adhere to 1099 reporting requirements can result in penalties imposed by the IRS. Penalties can apply for failing to file on time, filing incorrect or incomplete information, or not providing a correct payee statement. The penalty amount varies based on how late the filing occurs.

Penalties for late filing are $60 per form if filed within 30 days of the due date, increasing to $120 per form if filed more than 30 days late but before August 1. If filed on or after August 1, or if not filed at all, the penalty is $310 per form. For intentional disregard of the filing requirements, the penalty is higher, at a minimum of $660 per form or 10% of the income reported, with no maximum limit.