When Does an LLC Partnership Need a 1099?

Form 1099s are information returns used by businesses to report certain payments to the Internal Revenue Service (IRS) and to recipients. LLC partnerships, like other businesses, have specific obligations for issuing and receiving these forms.

Understanding 1099 Requirements for LLC Partnerships

An LLC partnership must issue 1099 forms when it pays $600 or more to an individual or unincorporated business for services or income during a calendar year. For instance, if an LLC partnership pays a freelance graphic designer $300 in January and another $350 in June, the total $650 payment triggers a 1099 reporting requirement.

The most common payment requiring a 1099 is non-employee compensation, such as payments to independent contractors, freelancers, and gig workers. An LLC partnership hiring a consultant or sales agent would report these payments. Rent payments of $600 or more made in a trade or business also require 1099 reporting, including office space or equipment rental.

Other income types triggering 1099 reporting include royalties ($10 or more), prizes and awards ($600 or more), and legal services. Payments to an attorney for general business matters are reported on Form 1099-NEC, while gross proceeds from legal settlements are reported on Form 1099-MISC.

An LLC partnership must issue a 1099 to individuals, sole proprietors, and other partnerships, including LLCs taxed as partnerships or single-member LLCs. Payments to corporations, including LLCs taxed as S or C corporations, are generally exempt from 1099 reporting.

Exceptions to the corporate exemption include payments for medical and healthcare services or gross proceeds paid to an attorney. Even if the payee is a corporation, these payments totaling $600 or more must be reported on a 1099-MISC. Therefore, an LLC partnership must determine the tax classification of its payees.

The specific form used depends on the payment type. Form 1099-NEC reports non-employee compensation of $600 or more. Form 1099-MISC reports other income types, such as rent, royalties, and legal settlements.

Gathering Necessary Information for 1099s

Before issuing 1099 forms, an LLC partnership must gather specific payee information. IRS Form W-9, “Request for Taxpayer Identification Number and Certification,” is the primary tool for collecting the payee’s correct name, address, and Taxpayer Identification Number (TIN).

The TIN is either a Social Security Number (SSN) for individuals or sole proprietors, or an Employer Identification Number (EIN) for businesses. Accurate TINs are important, as incorrect or missing information can lead to IRS penalties. The W-9 also allows the payee to certify their tax classification.

An LLC partnership should request a completed Form W-9 from each vendor or independent contractor at the beginning of the business relationship, ideally before the first payment. If a W-9 is not provided, the LLC partnership may be subject to backup withholding rules, requiring it to withhold a percentage of future payments.

Information collected on the W-9 includes the payee’s full name, business name (if applicable), current address, federal tax classification (e.g., individual/sole proprietor, C corporation, S corporation, partnership), and their correct TIN.

Completing and Filing 1099 Forms

After collecting W-9 information, an LLC partnership must accurately complete and file the relevant 1099 forms. Form 1099-NEC reports non-employee compensation, while Form 1099-MISC is used for other miscellaneous income, including rent, royalties, and certain legal payments.

When completing the forms, the LLC partnership must accurately enter its own identifying information (name, address, EIN) and the payee’s information (name, address, TIN from their W-9). The payment amount for the calendar year must be entered into the correct box, such as Box 1 for non-employee compensation on Form 1099-NEC, or various boxes for other income types on Form 1099-MISC.

Deadlines apply for furnishing 1099 forms to recipients and filing them with the IRS. For Form 1099-NEC, Copy B must be furnished to the recipient and Copy A filed with the IRS by January 31st of the year following the payment year. For Form 1099-MISC, Copy B is due to recipients by January 31st.

The filing deadline for Copy A of Form 1099-MISC with the IRS is February 28th for paper filing, or March 31st for electronic filing. If these dates fall on a weekend or holiday, the deadline shifts to the next business day. Failure to meet deadlines can result in penalties ranging from $50 to $270 per form.

LLC partnerships can file 1099 forms with the IRS via paper or electronically. Paper filing involves mailing Copy A of the forms with Form 1096, Annual Summary and Transmittal of U.S. Information Returns. Electronic filing is required if an LLC partnership files 10 or more information returns of any type during the year, including 1099s and W-2s. This can be done through the IRS FIRE system or third-party software. Some states may also have their own 1099 filing requirements.

LLC Partnerships as 1099 Recipients

While an LLC partnership issues 1099 forms, it can also receive them for income earned. For example, if an LLC partnership provides consulting services to a client and receives $600 or more, the client would issue a Form 1099-NEC to the LLC partnership.

Common forms an LLC partnership might receive include Form 1099-NEC for non-employee compensation, Form 1099-MISC for rents, royalties, or other miscellaneous income, and Form 1099-INT for interest earned on business bank accounts. An LLC partnership processing payments through third-party networks, like credit card processors, might also receive a Form 1099-K if it meets the $600 or more transaction threshold for 2024 and beyond.

Upon receiving 1099 forms, an LLC partnership should reconcile the reported income with its internal accounting records. This ensures income is accurately captured and reported on the partnership’s federal tax return, Form 1065. The income reported on these 1099 forms is then allocated to individual partners through their Schedule K-1s, which they use to report their share of the partnership’s income on their personal tax returns.