Do You Send a 1099 to an LLC Partnership?

A Form 1099 reports various types of income received during the year, excluding wages, salaries, and tips. Businesses frequently issue these forms to individuals and unincorporated entities for services rendered. Determining whether a Form 1099 is necessary when making payments to a Limited Liability Company (LLC) depends on how the LLC is classified for federal tax purposes. This guide clarifies 1099 reporting requirements for LLCs, especially those structured as partnerships.

Understanding LLC Tax Designations for 1099 Reporting

An LLC is a flexible business structure offering liability protection and various choices for federal income tax treatment. This tax designation significantly impacts whether a Form 1099 needs to be issued for payments. The Internal Revenue Service (IRS) generally requires businesses to report payments to unincorporated entities or individuals for services.

Many LLCs elect to be taxed as a partnership, meaning the business itself does not pay federal income tax. Profits and losses are “passed through” to the owners’ personal tax returns. Payments to an LLC taxed as a partnership often necessitate Form 1099 reporting if certain conditions are met.

An LLC can also elect to be taxed as a sole proprietorship if it has a single owner, often called a “disregarded entity.” Payments to such LLCs are generally treated like payments to an individual, typically requiring a 1099. Alternatively, an LLC can elect S Corporation or C Corporation tax treatment. Payments to LLCs with corporate tax treatment are typically exempt from 1099 reporting for services, with some exceptions.

Determining if a 1099 is Required

The requirement to issue a Form 1099 depends on the payment’s nature, amount, and the recipient’s tax classification. For most businesses, Form 1099-NEC is used for reporting nonemployee compensation, including payments for services by independent contractors or professionals.

A Form 1099-NEC is generally required if you pay an LLC $600 or more for services in your trade or business during a calendar year. Payments for goods, merchandise, or telephone services do not require a 1099. However, payments for services, including incidental parts and materials, typically fall under reporting rules.

The LLC’s tax designation is a factor in this determination. Payments of $600 or more for services to an LLC taxed as a partnership or sole proprietorship generally require a Form 1099-NEC. Payments to an LLC taxed as an S Corporation or C Corporation are usually exempt. An exception exists for attorney fees, which must be reported on Form 1099-NEC if they total $600 or more, even if paid to a corporate law firm.

Information Needed to Issue a 1099

Before issuing any Form 1099, collect specific payee information for accurate IRS reporting. IRS Form W-9, Request for Taxpayer Identification Number and Certification, is the primary tool for gathering this data. This form requests the payee’s correct name, address, and Taxpayer Identification Number (TIN).

A TIN can be an Employer Identification Number (EIN) for businesses or a Social Security Number (SSN) for individuals. The payee completes Form W-9, providing their legal name, business name, and tax classification. This classification is crucial for determining your 1099 reporting obligations.

Request a completed Form W-9 from any LLC you plan to pay for services, especially if payments may exceed the $600 threshold. Obtaining this form before payments helps ascertain whether a 1099 is necessary and provides all required information. Without a W-9, you may be subject to backup withholding, requiring you to withhold a percentage of payments and remit them to the IRS.

Issuing and Filing a 1099 Form

Once you have gathered all necessary information, typically via a completed Form W-9, you can proceed with issuing and filing the appropriate 1099 form. For nonemployee compensation paid to an LLC taxed as a partnership, Form 1099-NEC is the correct document. This form reports the total amount paid for services during the calendar year.

To complete Form 1099-NEC, use the information from the payee’s Form W-9, including their legal name, address, and EIN or SSN. Enter the total amount paid for services in Box 1. Accuracy is important, as discrepancies can lead to issues with the IRS.

You are generally required to furnish Copy B of Form 1099-NEC to the recipient LLC by January 31st of the year following payment. Simultaneously, Copy A must be filed with the IRS by the same January 31st deadline. Businesses can file Form 1099-NEC electronically through the IRS’s FIRE system or by mail.