Is an S Corp 1099 Eligible? Rules for Receiving & Issuing
Understand S corporation 1099 complexities. Learn when S corps receive and issue forms, and how other businesses should report payments to them.
Tax reporting for S corporations and Form 1099 often causes confusion. Businesses and individuals wonder if S corporations can receive these forms or if they must issue them. Understanding the rules and exceptions for 1099 forms and S corporations is important for compliance. This article clarifies when an S corporation interacts with 1099 reporting.
Understanding Key 1099 Forms
Form 1099 is an information return used by the IRS to track non-wage income. These forms ensure income received by individuals and certain entities, outside of traditional employment, is reported for tax purposes. They help the IRS monitor income streams not subject to standard payroll withholding.
Among 1099 forms, Form 1099-NEC (Nonemployee Compensation) and Form 1099-MISC (Miscellaneous Income) are relevant for businesses and independent contractors. Form 1099-NEC reports payments of $600 or more for services performed by non-employees, such as independent contractors or freelancers.
Form 1099-MISC reports a broader range of miscellaneous income payments. These include rents, royalties, prizes, awards, and other income payments totaling $600 or more in a calendar year. It also reports medical and healthcare payments, and cash payments for fish purchased for resale. Both forms help businesses report payments to non-employees.
S Corporations as Recipients of 1099 Income
An S corporation can receive 1099 forms from clients or payers. When an S corporation furnishes services to another business and the payments for these services exceed $600 within a calendar year, the paying business should issue a Form 1099-NEC to the S corporation.
Despite receiving a 1099, the income is not directly taxed at the corporate level for an S corporation. S corporations operate as “pass-through” entities, meaning their income, losses, deductions, and credits are passed through to the shareholders’ personal tax returns. The income reported on a 1099-NEC received by the S corporation is included in the corporation’s overall income on Form 1120-S, the U.S. Income Tax Return for an S Corporation.
Subsequently, each shareholder’s portion of this income is reported on a Schedule K-1 (Form 1120-S). Shareholders then use the information from their Schedule K-1 to report their share of the S corporation’s income on their individual income tax returns (Form 1040). This process ensures that while the S corporation receives the 1099, the tax liability for that income is ultimately passed on to its owners.
S Corporations and Their 1099 Issuance Obligations
An S corporation, like any other business entity, must issue 1099 forms. These obligations arise when the S corporation makes payments to independent contractors, vendors, or other service providers. If an S corporation pays $600 or more to an unincorporated individual or business for services, it must issue a Form 1099-NEC.
This includes payments for services from freelance graphic designers, marketing consultants, or IT specialists. An S corporation must also issue Form 1099-MISC for other payments, such as rents, prizes, or awards that meet the $600 threshold. These forms must be provided to the recipient by January 31st of the year following the payment.
The corresponding copies of these 1099 forms, along with a Form 1096 Annual Summary and Transmittal of U.S. Information Returns, must also be filed with the IRS. The deadline for filing Form 1099-NEC with the IRS is January 31st. For Form 1099-MISC, the deadline for electronic filing is March 31st, while paper filing is February 28th.
Reporting Payments to S Corporations
Businesses often wonder if they must issue a Form 1099 to an S corporation for services. Businesses are not required to issue Form 1099-NEC for payments made to corporations, including S corporations, for services. This exemption exists because corporations are considered separate legal entities and are subject to their own tax reporting requirements, such as filing Form 1120-S. The IRS expects corporations to report their own income.
However, there are specific exceptions to this general rule where a 1099 form must be issued to an S corporation. Payments for medical and healthcare services totaling $600 or more are reportable on Form 1099-MISC, even if made to an incorporated entity like an S corporation.
Similarly, payments to attorneys, regardless of their business structure (including law firms organized as S corporations), are subject to 1099 reporting if the payments are $600 or more. Attorney fees for legal services are reported on Form 1099-NEC, while gross proceeds paid to an attorney in connection with legal services are reported on Form 1099-MISC.