Does an S Corp Receive a 1099?
Clarify S Corporation income reporting. Learn when these business entities typically receive 1099 forms and the specific situations that necessitate their issuance.
An S corporation is a business entity that elects a specific tax classification with the Internal Revenue Service (IRS). This election allows the corporation’s income, losses, deductions, and credits to “pass through” directly to its shareholders. The shareholders then report these items on their individual tax returns, avoiding the double taxation typically associated with C corporations where both the corporation and its shareholders are taxed on profits.
Understanding 1099 Forms
Form 1099 is a series of tax forms used by the IRS to report various types of income other than wages, salaries, and tips, which are reported on Form W-2. They provide details to both the recipient and the IRS about payments made during the tax year. Common types include Form 1099-NEC for nonemployee compensation, used for payments of $600 or more to independent contractors, and Form 1099-MISC for miscellaneous income such as rent, royalties, and prizes. Businesses are generally required to issue these forms to individuals or unincorporated entities when certain payment thresholds are met.
The General Rule for S Corporations
An S corporation does not receive Form 1099-NEC for services it provides. The IRS exempts corporations, including S corporations and C corporations, from this requirement. This is because corporations are distinct legal entities presumed to have accounting systems in place to accurately track and report their income. Requiring a payer to also issue a 1099 for services to a corporation would create redundant reporting and complicate tax compliance. For general consulting, marketing, or web design services, a business paying an S corporation would not issue a 1099-NEC.
Situations Where an S Corporation Receives a 1099
While the general rule exempts S corporations from receiving 1099s for services, several specific exceptions exist where an S corporation would receive one. These exceptions often involve types of income that the IRS requires to be reported regardless of the recipient’s entity type. Payments for legal services, whether for attorneys’ fees or gross proceeds in connection with legal services, must be reported on Form 1099-NEC or Form 1099-MISC, even if the legal provider is an incorporated law firm.
Payments for medical and health care services made to S corporations are also subject to 1099 reporting requirements on Form 1099-MISC. Other income streams that might trigger a 1099 for an S corporation include rents of $600 or more, royalties of $10 or more, and certain substitute payments in lieu of dividends or tax-exempt interest. For example, if an S corporation leases office space and receives $800 in rental payments from a tenant, the tenant would issue a Form 1099-MISC to report this income. If an S corporation earns interest income of $10 or more from a bank account, it would receive a Form 1099-INT.