Informational returns: Do S corporations get a 1099?
If you own an S corporation, you probably have many operational activities to tackle, like business planning, managing employees, and handling finances. Many business owners wonder if S corporations must get Form 1099 for tax information.
This guide will help you understand whether you must receive and issue Form 1099 on behalf of your corporation.
What is a 1099 Form?
The Internal Revenue Service (IRS) uses different types of 1099 tax forms to track income other than regular salary or wages.
For example, you might need to file a 1099 Form if you are a freelancer, earn rental income, or receive dividends. All 1099s are informational tax returns.
This Form's most commonly used variants are the 1099-MISC (Miscellaneous Income) and the 1099-NEC (Nonemployee Compensation).
- The 1099-MISC is used to report rental income, awards, and healthcare payments – all these transactions that are not liable to self-employment tax.
- Businesses use the 1099-NEC to report payments of $600 or more to non-employees, which are likely subject to self-employment tax.
This IRS guide provides detailed information on the differences between these two forms and the requirements for each.
What is an S corporation?
An S corporation is a tax status for a business that determines how to tax it but does not affect its structure.
If a Limited Liability Company (LLC) or a corporation meets the requirements of subchapter "S" in the tax code, they can choose to be taxed as an S corporation.
Also read. Form 2553: How to elect an S corp tax status
Do S corporations get a 1099?
The purpose of issuing 1099 Forms is to report the income paid to individuals, partnerships, and other entities not classified as corporations.
Corporations and S corporations are not usually required to receive 1099 Forms for services provided. This is because they are considered separate legal entities.
When do S corporations need to issue or receive Form 1099?
Even though corporations do not usually deal with 1099 Forms, there are several exceptions to the general rule. For example, if you are an attorney and provide legal services, the exemption from reporting payments through Form 1099 does not apply to you.
- If your S corporation paid any non-corporate service provider more than $600 during the tax year, you need to send them Form 1099.
- If your S corporation provides certain services, such as legal or medical care services, you need to receive 1099s.
Other reportable payments to corporations:
- cash payments for the purchase of fish for resale
- substitute payments instead of dividends or tax-exempt interest reported
- cross proceeds paid to an attorney
If your S corporation receives payments of $600 or more for goods and services through credit card, PayPal, or similar, you will receive a summary of those payments on Form 1099-K.
Using the wrong 1099 Form can lead to penalties and delays in tax return processing. It can happen, for example, if you file a 1099-MISC form instead of a 1099-NEC form.
Note that you might need to file both Forms 1099-MISC and 1099-NEC along with any other type of 1099. Consult with a tax professional to get guidance on informational returns for your S corporation.
Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. Always consult with a tax professional regarding your specific case.