Do S Corps Get 1099 Forms? All You Need to Know

Napoleon

— 14 min read
Do S Corps Get 1099 Forms? All You Need to Know

As an S Corp owner, you have a lot of paperwork, especially regarding the intricacies of US tax filings. Among the questions you might have when filing the many papers with the IRS is, do S Corps get 1099 forms? 

Whether you’re a new S Corp owner or someone considering starting one, understanding the forms you must file with the IRS is crucial. Form 1099 is one of the paperwork you’ll have to deal with when making your annual returns. Proper filing ensures you comply with the law, avoid penalties, and build a good relationship with contractors and service providers.  

Foundeck in this guide look into Form 1099, what it is, what it contains, when to file it, and who should file it. Therefore, if you’re looking for information about 1099, today is your lucky day. We’ll answer these questions and tell you all you need about Form 1099. 

What is Form 1099?

A 1099 tax form is a series of documents the IRS uses to exchange information. The forms report non-employee compensation made yearly besides regular wages or salary. 

A 1099 form comes in numerous varieties, but the most popular are 1099-MISC and the new 1099-NEC. The IRS uses the information on 1099 forms to track income from different sources. For people who have done consulting work or freelance, received dividends, or earned rental income, you must have seen a Form 1099. 

Besides using Form 1099 to track income received from individuals and businesses, the IRS also uses the form to help taxpayers accurately report their income on tax returns. 

Do S Corps get 1099 forms? An S Corp can get 1099 forms or not, depending on the type of income it receives and the requirements of these forms. 

Knowledge is power; understanding tax requirements will help you manage your business finances and avoid surprises during the tax season. The IRS expects you to send 1099 forms between January 31 and February 15. 

Common Types of 1099 Forms

One thousand ninety-nine forms come in many variations, each capturing specific income. Some 1099 forms are popular, while others are rare and specific. Here are the most common types of 1099 forms. 

  1. 1099-A: When your mortgage lender forecloses and terminates your mortgage fully or partially, you can receive Form 1099-A. They can do so if they believe you’ve sold, abandoned, or stopped using the property. The IRS considers canceled debt taxable income. Hence, you might owe some taxes, as stated on Form 1099-A. 
  2. 1099-B: You report the income from selling various securities and bartering (websites). Brokerages and barter exchanges record customer gains and losses in the tax year on form 1099-B. 
  3. 1099-C: when your lender cancels an entire debt or part of it due to the foreclosure of a secured property, you may receive Form 1099-C. It contains the debt amount canceled and is considered taxable income by the IRS.
  4. 1099-INT: If your Corporation earns over $10 bank interest or other financial institution, you get form 1099-INT.
  5. 1099-CAP: Corporations report substantial changes like control or capital structure using this form. If you own any stock in a corporation that underwent a significant change, you received stock, cash, or other property from the sale, you receive Form 1099-CAP.
  6. 1099-MISC: Miscellaneous income or payments not reported on other 1099 forms appear on Form 1099–MISC. These payments include awards, prize money, attorney fees, and substitute payments. The form isn’t issued for personal services. 
  7. 1099-DIV: The dividends or distributions you receive in a tax year are reported on Form 1099-DIV and are sent by the bank or financial institutions.
  8. 1099-G: For any tax refund you receive or unemployment (benefits) from the federal, state, or local government, you get a Form 1099-G.
  9. 1099-K: An S Corp receives a summary of payments for goods and services totaling $600 through credit card or other payment methods like Venmo, PayPal, or Cash App on the 1099-K form. 
  10. 1099-S: Individuals who make a real estate transaction (sale or exchange) on Form 1099-S. A good example is obtaining gains from selling residential or commercial assets. 
  11. 1099-NEC (Non-Employer Compensation): Any business that pays a non-employee $600 or more in a tax year must file Form 1099-NEC. The non-employee can be an independent contractor, freelancer, or self-employed individual. 

Do S Corps Get 1099 Forms

Typically, S Corps don’t receive 1099 forms, but this is not a blanket rule, as exceptions exist.

Corporations, including S Corps, are mostly exempt from receiving 1099 forms for their services, primarily legal or medical services. Other payments include substitute payments instead of dividends or interest. In such cases, the S Corp is issued with a 1099 form.

Another scenario where an S Corp must issue a 1099 form is when they pay over $600 to a non-corporate service provider in the tax year. 

In a nutshell, S Corps doesn’t receive 1099 forms, but there are unique situations when they might. Thus, knowing these exceptions, you can avoid tax hiccups. 

Form W-9 and 1099

The W-9 and 1099 are both tax forms that serve different purposes. Before preparing 1099’s, you must collect the correct info, where the W-9 comes in. Every vendor or independent contractor must complete a W-9 Form to get a Taxpayer Identification Number (TIN) and certification. The W-9 form will furnish you with the details to prepare the 1099’s. These details include: 

  1. Individual or business name
  2. Address, and 
  3. Identifying numbers like Social Security Number (SSN) or Employer Identification Number (EIN). 

Once you have the W-9, please keep it in your company records after preparing the 1099s. 

Why S Corporations Don’t Get a 1099

The primary reason why S Corporations don’t receive 1099 forms for payments they receive is because they’re a separate legal entity. S Corps are subject to stringent federal and state tax laws explaining why they’re exempt from receiving the 1099 forms. These situations warrant S Corps to receive 1099 forms for specific payments: 

  1. Gross proceeds were paid to an attorney
  2. Attorney charges for legal services provided even when the lawyer is incorporated
  3. Payments made to for-profit healthcare care providers
  4. Payment made except tax-exempt interest or dividends.

When Do S Corps File for 1099 Forms?

As an S Corp owner, it’s essential to know payments warrant issuing a 1099 form. You should issue a 1099-K, not the 1099-MISC form, to every person you pay at least $600 during the tax year for the following reasons: 

  1. Medical and healthcare payments
  2. Rents
  3. Crop insurance proceeds
  4. Prizes and awards
  5. Attorney payments
  6. Other income payments
  7. Fishing boat proceeds
  8. Cash payments for fish and other aquatic life purchased from anyone in the trade
  9. Cash payment from a notional principal contract to an estate, partnership, or individual 
  10. Broker payments or a minimum of $10 in royalties instead of dividends or tax-exempt interest.

The $600 Rule

Companies only send 1099-MISCs to contractors who receive payments worth over $600 in a calendar year. If a company uses a third-party network or credit card to pay, they send a 1099-K, not the 1099-MISC. 

The 1099s a company must send are:

  1. A debt over $600 owed to you by an S Corp —1099-C
  2. S Corps who sell or abandon secure property to you — 1099-A
  3. Barter exchanges made with S corporations — 1099-B
  4. Merchant card payments made to S Corps exceeding $20,000 or 200 transactions — 1099-K  

1099-MISC and 1099-NEC Forms

The two most popular 1099s are 1099-MISC and 1099-NEC.

  1. A 1099-MISC reports miscellaneous income like rents or direct sales to consumers of up to $5,000.
  2. The 1099-NEC reports payments made to independent service vendors. 

The 1099-NEC is a new variation of the 1099-MISC that reports anything paid to an individual or business for services offered. These services must be part of your everyday business operations.

Typically, the 1099-NECs and 1099-MISCs aren’t issued to Corporations except in a few situations. Corporations can receive a 1099-NEC for fish purchases, attorney fees, or paying for services by a federal executive agency. 

1099 Form Exemptions

According to the IRS rules, Corporations don’t have to get 1099s except for a few situations explained below:

1. Payments Below $600

What if payments to non-employees are less than $600? For payments less than $600, you don’t need to issue a 1099-NEC to the vendors whether they meet the Payment Settlement Entity (PSE) threshold. 

Note that popular cash payment methods like Google Wallet, Facebook Money, or Venmo don’t meet the IRS definition of PSE. Hence, if the payment you make to independent vendors on these platforms exceeds $600 in a calendar year, you must issue a 1099.

2. Personal Payments

As an S Corp owner, remember that 1099s report payments made only for services, not goods, products, or membership. The services you pay from the S Corp must be part of the business’s daily operations. Hence, you can’t issue a 1099 for payments made towards personal needs.

3. Payments to Corporations

Issuing 1099 to vendors paid through third-party networks like PayPal and credit cards is exempted. For this reason, S Corp owners should use a business credit or debit card. 

According to the IRS, PayPal doesn’t meet the PSE definition and has special reporting requirements. PSEs issue a 1099-K Form to a business or individual if they meet specific thresholds. Currently, threshold payments for PSEs are set for payments over $20,000 and at least 200 transactions yearly.

4. Freelancer Hired Through Third-parties

Sometimes, you may have to hire freelancers through third-party services like online platforms or marketplace websites. You don’t have to issue a 1099-MISC when you pay them, as the responsibility shifts to the third-party service provider.

Information Required to Complete a 1099 Form

Anytime you’re making any filing during the tax year, you must do so meticulously to ensure you complete the 1099-MISC form accurately. You need this information when completing the form. 

  1. The recipient’s name
  2. Address
  3. Taxpayer Identification Number (TIN)
  4. Description of the services you’re paying for 
  5. Total amount paid for the services
  6. Date when the S Corp made the payment

Always ensure the information you provide is accurate and up to date. 

  1. Payer Information. Provide your name, address, and Taxpayer Identification Number (TIN), Social Security Number (SSN), or Employer Identification Number (EIN).
  2. Recipient’s Information. Provide the name, address, and TIN (SSN, EIN) of the person receiving the money. Ensure the recipient’s information is accurate and matches the records they provided.
  3. Payment Details. Include the total amount you paid the recipient during the tax year. It should include cash and non-cash payments for rent, services rendered, royalties, or any other income. Ensure you accurately report payments and check the appropriate boxes on the 1099 form.
  4. Form Specific Information. Depending on the 1099 form you’re completing, you may be required to provide more information. For instance, on a 1099-MISC form, you may have to give more details, like the recipient’s occupation or the state where the services were rendered.

Sending 1099 Forms

After completing the 1099-MISC form, send copies to: 

  1. The recipient 
  2. The IRS, and 
  3. Your state tax agency

You can submit the form via mail or use the IRS’s online filing system. If you send via mail, use certified mail for security and proof that you sent the document promptly. For electronic submissions, visit the IRS online service and follow the instructions provided in these three steps:

  1. Copy Distribution: The recipient of the pay gets a copy of the completed 1099 form by January 31 of the following year the money was paid. 
  2. IRS Filing: File the appropriate 1099 forms with the IRS alongside the 1096 form, which summarizes all the 1099 forms your S Corp is filing. Most paper filings for 1099s happen on February 28, but electronic filing is done by March 31. 
    • If the filing date falls on a weekend or holiday, the filing date moves to the next business day.
    • Be sure to check and verify your S Corp filing deadlines, as they may vary, to ensure you aren’t late or cause another person’s late filing. 
  1. State Filing: Depending on your state’s filing requirements, you may have to file the 1099s with them and the IRS. States differ in filing requirements and deadlines, specifically for reporting 1099 information. Hence, you must check with your state’s tax agency to determine if you must file 1099 forms.

1099-MISC. Reporting payment to a non-employee in Box 7 of the 1099-MISC and other 1099s is also January 31.

Rules and Requirements for Filing 1099 Forms

It’s an IRS rule that an S Corp doesn’t receive 1099 forms for services offered. The 1099-MISC is equivalent to a W-2 issued to independent contractors, and the IRS uses these forms to monitor taxes they should collect from self-employed people. 

1099-MISCs are sent to one-member LLCs but not a company with S or C corporation status. The company that made the payment to the independent contractor is responsible for reporting the payment to the IRS and sending a copy to the provider. 

The exceptions regarding 1099 forms are mainly for payments related to legal and medical services. If your S Corp offers these types of services, they’ll be issued with a 1099 form by the paying entity. Thus, if your S Corp provides legal or medical services, some 1099s will come for you during the tax season.

Any non-corporate service provider paid $600 or more during a tax year will receive a 1099 form. For instance, if your S Corp hired a graphic designer for $600 or more, you send them a 1099 form. 

Although the S Corps doesn’t receive 1099s, they are responsible for reporting all income to the IRS. The rule applies if they get a 1099 form or not.

Best Practices when Handling 1099 Forms as an S Corp

If your tax season is here and you’re issuing 1099s, it’s crucial to get it right, and if you’re receiving them, understanding how to handle them is also essential. Here’s what to do when an S Corp is handling 1099s.

  1. Be prompt when issuing 1099s: Time is of great essence when it comes to handling taxes. You should never drag your feet when issuing a 1099 to a non-corporate service provider, since they should get to the IRS by January 31. Besides complying with the law, it’s also good business practice to always be timely.
  2. Keep accurate and up-to-date records: Accurate records make it easy for you to monitor all business transactions, making it easy to issue 1099s. Also, accurate records are invaluable when the IRS audits you. 
  3. Consult with a tax professional: Filing taxes for your S Corp might be overwhelming, and if you need help, consult a tax professional to help you get it right. Hiring a tax professional will help you save time and reduce stress levels and money. A tax professional will also ensure you comply with all IRS rules and regulations.
  4. Report all income: You are responsible for reporting all your S Corp income, even when you don’t receive a 1099 form for services rendered. Before submitting your records to the IRS, compare your records with any 1099s you receive to ensure accuracy.

Penalties for Late Filing of 1099 Forms 

Late filing with the IRS can cause expensive problems for your S Corp that you may want to avoid dealing with. Thus, forgetting to file 1099 forms or late filing means you are penalized by the IRS. 

The penalty amount the IRS will charge you depends on how late you are. The penalty can range from $50 to $550 on each form, but it’s higher for larger businesses. The maximum penalty for late filing with the IRS can go as high as $1,113,000 in a tax year. 

So, to avoid these hefty fines, you should always keep up with deadlines. The circumstances for furnishing a vendor with a 1099 form late can also determine the penalties. Here’s a detailed look at the penalties range: 

  1. $50 for every 1099 form you file correctly within 30 days of the due date. 
  2. $110 for every 1099 form you file correctly 30 days after the due date but before August 1. 
  3. $280 for every 1099 form you file correctly on or after August 1 means you didn’t file at all, and the penalty is higher. 

These penalty amounts can change in some situations, subject to the IRS guidelines or penalty relief. Your S Corp attracts these penalties for failure to furnish non-employees with the correct information returns on time. The penalties are outlined under the Internal Revenue Code under section 6722.

What to Do After Mistakenly Sending 1099 to an S Corp?

Sometimes mistakes are inevitable even after checking your filing documents, and you may send a 1099 to an S Corp. So, what do you do to fix the situation? 

  1. Contact the recipient: Get in touch with the S-Corporation and explain the mistake. Inform them to disregard the 1099 form, as it was sent by mistake in error. Clear communication to prevent confusion or fuel issues with the IRS.
  2. Correct the reporting with the IRS: If the 1099 form has already been filed with the IRS, you correct the error by filing an amended return. You file a 1096 and corrected 1099 forms to ensure the IRS has accurate information. Indicate whether the form has been corrected and explain the reason for the correction. 
  3. Retain documentation: Keep every communication record with the S-Corporation concerning the mistake and any altered forms or amended returns you filed with the IRS. In the future, and especially during audits, these documents can prove that you tried to salvage the situation after making the error.

How the IRS Catches 1099 Mistakes

The IRS has a system that compares the reported income on tax returns and the information on 1099 Forms. Assuming they find discrepancies like a missing 1099-NEC, the IRS will notice the omission and initiate an inquiry for clarification by contacting the taxpayer.

Whether the error is intentional, you should know that the IRS has dramatically improved its data-matching capabilities. As a result, the IRS can quickly identify discrepancies and enforce corrections to ensure compliance by all taxpayers, individuals, and businesses. Failure to report income can have consequences like financial penalties, audits, or interest on late taxes.

Reporting all income accurately ensures compliance with tax regulations while avoiding potential issues. 

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Frequently Asked Questions

Is Form 1099 different from W9?

Yes, a 1099 and a W9 are different. Although you’ll come across them when filing taxes, they serve different purposes: what they’re reporting, who they are for, and when to use them. The information on a W-9 is used to get TIN certification and to complete a 1099. 

How to differentiate a C Corporation from an S Corporation

A C Corporation is a default or standard corporation form under IRS rules. The S corporation has a special tax arrangement with the IRS, and it comes with some advantages.

Can I convert my S Corp to a C Corp?

Yes, you can convert your S Corp to a C Corp with the Internal Revenue Service (IRS) on Form 2553, the same form used to elect S corporation status. You must revoke the election if you’re converting from an S corp to a C Corp. 

What sets apart the 1099 and W-2?

What sets apart a Form 1099 from a W-9 is the purpose. A 1099 is used to report non-employment income to freelancers or individual contractors. A W-2, on the other hand, displays a taxpayer’s annual wages or employment income from a specific employer in a tax year. Unlike 1099, which shows the income paid, a W-2 displays the taxes an employer withholds from the team member employee’s salary for an entire year.

In Summary

Do S Corps get 1099 forms? Typically, the S Corps don’t get 1099s, but there are some exceptions to this IRS rule, especially when providing legal or medical services. However, an S Corp can issue a 1099 when they pay a non-employee service provider $600 or more in a calendar year. 

The IRS doesn’t recognize an S Corp as an independent contractor, so sending them a 1099 can confuse them during the tax filing season. But what if you send an S Corp a 1099 by mistake? When this happens, contact the S Corp and send a corrected 1099 to them to avoid further problems and keep the records. 

An in-depth understanding of the 1099 forms is crucial for any business or an S Corp owner. 

Proper handling of tax documents can make it smooth sailing or an expensive headache for your S Corp. 

Remember, during your tax year, you must file a 1099-MISC form for any person or entity for which you’ve paid $600 or more for their services. Filing of a 1099 must be done by January 31, meaning you must send a copy of the 1099 to the receiver before or before. Late tax filing or failure to file can lead to penalties from the IRS. 

There are different 1099 forms taxpayers file to report their income to the IRS, such as local tax refunds, interest income, local tax refunds, and retirement account payouts. As a taxpayer, you should always be on time when filing your taxes with the IRS, whether you are 1099 or not. WHY? Taxpayers don’t need a 1099 when filing their taxes but must report any mistakes on their 1099s. If you have any question on S Corps, kindly contact one of our experts here.

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