When Is a 1099 Required for a PLLC?
A PLLC's legal status doesn't determine its 1099 requirement. Learn the key distinctions based on tax elections and service types for accurate reporting.
Business owners often face confusion when determining tax reporting obligations for payments to vendors. A frequent uncertainty involves payments to a Professional Limited Liability Company (PLLC). The reporting duty hinges on the vendor’s tax status and the nature of the services provided, making a clear understanding of the rules necessary for compliance.
General Rules for Issuing Form 1099-NEC
The primary tool for reporting payments for services to non-employees is Form 1099-NEC, Nonemployee Compensation. Businesses must issue this form to any individual, partnership, or certain other entities to whom they have paid $600 or more for services during a calendar year. The threshold of $600 is cumulative, meaning all payments to a single vendor throughout the year must be totaled.
A significant aspect of 1099-NEC reporting is the general exemption for payments made to corporations. If your business pays a vendor that is taxed as a C Corporation or an S Corporation, you are not required to issue a Form 1099-NEC. This exemption exists because corporations have their own distinct tax filing obligations. This corporate exemption is foundational to navigating the requirements for PLLCs.
Determining the 1099 Requirement for a PLLC
A Professional Limited Liability Company is a legal entity created under state law, but its treatment for federal tax purposes is not fixed. A PLLC can elect how it wishes to be taxed, and this choice dictates whether you must issue a 1099-NEC. The definitive document for ascertaining a PLLC’s tax classification is Form W-9. It is standard practice to request a completed Form W-9 from any new vendor before issuing payment.
The information on Form W-9 removes any guesswork. If the PLLC has checked the box indicating it is taxed as a “Sole proprietor/Single-member LLC” or a “Partnership,” it is treated as a pass-through entity. In these cases, you are required to issue a Form 1099-NEC if you pay them $600 or more for services. The 1099-NEC provides the necessary income verification for the IRS.
Conversely, if the PLLC has checked the box on Form W-9 for “C Corporation” or “S Corporation,” it is taxed as a corporation, and no Form 1099-NEC is required. Obtaining a W-9 provides a clear, documented basis for your filing decision and is necessary to avoid non-compliance with IRS rules.
Key Exceptions for Payments to Professionals
While the corporate exemption is a general rule, certain exceptions apply, particularly for payments to professionals. These exceptions override the guidance on Form W-9 and require a 1099 to be issued regardless of the PLLC’s tax classification. These scenarios are common when dealing with professional service providers.
One of the most significant exceptions involves payments for medical and health care services. Any payment of $600 or more made to a doctor, clinic, or other medical service provider must be reported on a Form 1099-NEC. This rule applies even if the medical practice is a PLLC taxed as a C Corporation or an S Corporation.
Another exception relates to payments for legal services. All payments of $600 or more made to an attorney or a law firm in the course of your business must be reported. This rule applies regardless of the law firm’s entity structure, meaning you must issue a Form 1099-NEC even if the firm is a PLLC taxed as a corporation.
Required Information and Form Completion
Once you determine that a Form 1099-NEC is required, you must gather the necessary information to complete the form. The primary source for this data is the Form W-9 from the vendor. This form provides the payee’s legal name, business address, and their Taxpayer Identification Number (TIN), which could be an Employer Identification Number (EIN) or a Social Security Number (SSN).
With the payee’s information from the W-9 and your payment records, you can fill out the Form 1099-NEC. The total amount of nonemployee compensation paid during the calendar year is entered in Box 1. You will also transfer the payee’s name, address, and TIN, along with your business’s information, into the designated boxes.
Ensure the information is transcribed correctly from your records and the W-9. Any discrepancy in the name or TIN can lead to processing issues with the IRS and potential penalties.
The Filing Process for Form 1099-NEC
After completing the Form 1099-NEC, you must file it with the IRS and send a copy to the recipient. The IRS requires electronic filing for businesses that file 10 or more information returns of any type in a calendar year. This is a change from the previous threshold of 250 returns. For those filing fewer than 10 returns, mailing paper forms remains an option.
To file electronically, businesses can use the IRS’s free online portal, the Information Returns Intake System (IRIS). The older Filing Information Returns Electronically (FIRE) system and various third-party tax software are also available.
A copy of the Form 1099-NEC must be furnished to the recipient by January 31 of the year following the payment. The deadline for filing the form with the IRS is also January 31, regardless of whether you are filing electronically or by mail. Meeting these deadlines is necessary to avoid late-filing penalties.
If you file electronically, you will receive a confirmation from the IRS that your submission has been accepted. The recipient PLLC will then use its copy of the Form 1099-NEC to report the income on its own tax return.