1099 for S-Corp: Does an S Corporation get a 1099?
Written by Stephanie Glanville
Stephanie Glanville is the Marketing Manager of TaxBandits. She has several years of experience with IRS tax forms and the funtionality of TaxBandits. With a passion to help business owners better understand their IRS tax forms and filing, she aims to create content that is valuable and informative.
As an S corporation, you likely manage various operational tasks such as business planning, employee management, and financial matters. It's common for S corporations to question whether they need to receive and/or issue Form 1099
for tax purposes.
This article explores the Form 1099 requirements for S corporations and clarifies whether your corporation needs to receive and/or issue these forms.
Key Takeaways:
- To file 1099 forms accurately, businesses should request Form W-9 from S corporations to obtain essential details such as the Employer Identification Number (EIN) and tax classification.
- Generally, S corporations do not receive 1099 forms, as their income is reported on the shareholders' personal tax returns. However, exceptions exist for certain payments, such as legal services and for-profit healthcare providers.
- Depending on the nature of its payments or income, an S corporation might receive Forms 1099-NEC, 1099-MISC, or other 1099 Forms.
- If a 1099 is mistakenly sent to an S corporation, issue a corrected form and notify the S corporation to avoid complications.
Table of Content:
3. When Does an S Corp Need to File a 1099 Form?
4. What Information is Required to File 1099 Forms for an S Corporation?
5. How do Businesses Collect Tax Information from an S Corp?
6. Does an S Corporation Receive a 1099 Form?
7. What are the Common 1099 Forms that an S Corp May Get?
1. What is a 1099 Form?
The Internal Revenue Service (IRS) uses various 1099 tax forms to track income other than regular salary or wages. These forms are essential for reporting different types of income, such as non-employee compensation, rental income, interest, and dividends. All 1099 forms are informational tax returns, providing the IRS with detailed income information beyond regular wages.
2. What is an S Corporation?
S corporations are a specific type of business entity that allows income, losses, deductions, and credits to pass directly to shareholders for federal tax purposes. This means shareholders report these items on their personal tax returns and pay taxes at their individual rates, avoiding the double taxation typically faced by regular corporations. To qualify as an S corporation, a business must:
- Be a U.S. Corporation: Your business must be based in the United States.
- Have Eligible Shareholders: Shareholders can be individuals, certain trusts, or estates but cannot include partnerships, other corporations, or non-resident aliens.
- Limit Shareholders: You cannot have more than 100 shareholders.
- Issue Only One Class of Stock: You must only have one type of stock.
Exception: Certain financial institutions, insurance companies, and domestic international sales corporations do not qualify as S corporations.
3. When Does an S Corp Need to File a 1099 Form?
Knowing when to issue a 1099 form is essential for an S Corporation. You are required to issue 1099 forms to any independent contractor to whom you pay $600 or more during the tax year. If you’ve contracted a freelance web developer or a business coach for your S Corp and paid them $600 or more, you’ll need to issue them a 1099 form.
4. What Information is Required to File 1099 Forms for an S Corporation?
To file a 1099 Form for an S Corporation, businesses must gather specific tax information, including the S Corporation's Employer Identification Number (EIN). The corporation must also have its legal name, address, and tax classification details before filing. Incomplete or inaccurate information can lead to rejected 1099 filings or require corrections later, potentially delaying the process.
5. How do Businesses Collect Tax Information from an S Corp?
To collect tax information from an S Corporation, businesses typically follow these steps:
1. Request Form W-9: The primary method for gathering tax details from an S Corporation is to request that the S Corp complete and return Form W-9, the Request for Taxpayer Identification Number and Certification. This form provides critical information such as the S Corporation’s Employer Identification Number (EIN), legal name, address, and
tax classification.
2. Review Form W-9: Once the S Corporation submits the completed Form W-9, review it carefully to ensure that all required fields are accurately filled out. This includes verifying the EIN and confirming that the entity is appropriately classified as an S Corporation.
3. Verify Tax Classification: The S Corporation will indicate its tax classification on the W-9 form. This information is important for understanding how the S corporation is taxed and whether 1099 forms are required.
4. Record Keeping: Keep the completed Form W-9 in your records. This document is essential for accurately preparing 1099 forms and ensuring compliance with IRS reporting requirements.
5. Use the Information for 1099 Reporting: Use the information from the W-9 to report payments made to the S Corporation correctly. This will help determine if and how to file 1099 forms, as S Corporations typically do not receive 1099 forms for payments related to their business activities.
6. Does an S Corporation Receive a 1099 Form?
The answer is generally NO. Form 1099 reports income from non-employment sources, such as interest, dividends, and self-employment earnings. The IRS mandates 1099 forms for business services but does not require them for
personal services.
According to the IRS general rules, an S corporation does not receive a 1099 Form; the same goes for a C corporation. S corporations are exempt from receiving Form 1099 because they are pass-through entities; their income is reported directly on the owners’ individual tax returns rather than the corporate level.
However, a 1099 Form must be issued whenever applicable for an LLC, sole proprietorship, or partnership.
In general, S corporations do not receive 1099 forms.
However, a few exemptions for certain payments require you to file a 1099 Form with the IRS despite its status.
- Amounts paid to attorneys as gross proceeds(if the lawyer incorporated).
- For-profit medical and healthcare service providers.
- Substitute payments instead of tax-exempt interest or dividends.
For example, suppose your S corporation hires an attorney to oversee a settlement agreement and pays the attorney more than $600 for these legal services. In that case, you must report this payment in Box 1 of Form 1099-NEC, under section 6041A(a)(1).
Section 6041A(a)(1): Section 6041A(a)(1) of the Internal Revenue Code outlines the reporting requirements for payments made to individuals or entities. This section requires businesses and individuals to report certain non-employee payments, including services rendered by independent contractors, attorneys, and other service providers. Payments of $600 or more during the calendar year to a single payee must be reported. This threshold applies to various types of payments, such as compensation for services.
7. What are the Common 1099 Forms that an S Corp May Get?
Although generally not a recipient of Form 1099s, an S corporation may still receive certain 1099 forms in specific situations. Here are common 1099 forms an S Corp might receive.
-
Form 1099-NEC (Nonemployee Compensation): If your S Corp may hire independent contractors or freelancers for various services. If the total payment to any contractors is $600 or more during the year, you will receive a Form 1099-NEC from the payer.
Example: Suppose your S corporation hires a freelance IT consultant for a major project and pays them $1,000 for their services. The payer (your company) will issue a Form 1099-NEC to report this payment to the IRS.
-
Form 1099-MISC (Miscellaneous Income): If your S corps receives miscellaneous income that doesn't fall under other specific 1099 categories, you might receive Form 1099-MISC. This could include rent, royalties, or other types of miscellaneous income.
Example: If your S corporation leases office space and receives rental payments totaling $800 from a tenant, the tenant will issue Form 1099-MISC to report the rental income.
-
Form 1099-INT (Interest Income): If your S Corp earns interest from bank accounts or other financial investments, you may receive Form 1099-INT from the financial institution reporting the interest earned.
Example: If your S corporation maintains a significant balance in a savings account and earns $150 in interest over the year, the bank will issue Form 1099-INT to report the interest income.
8. What is the Difference Between an S Corp vs C Corp?
The primary distinction between an S corporation and a C corporation lies in federal income tax liability and ownership. S corporations are pass-through entities, meaning that profits and losses pass through to shareholders' personal tax returns. On the other hand, C corporations are separate taxable entities that are subject to double taxation.
Here’s the breakdown of the differences between the two types of corporations.
| Parameter | S Corporation | C Corporation |
|---|---|---|
|
Taxation |
Pass-through taxation; no corporate income tax |
Double taxation, corporate tax plus tax on dividends |
|
Shareholders |
Limited to 100 shareholders |
Unlimited number of shareholders |
|
Fundraising |
One class of stock |
Common or preferred stock |
|
Eligibility |
Must be a U.S. citizen or resident |
There are no restrictions on the number or type of shareholder |
|
Entity Structure |
Typically used by small businesses |
A common choice for larger companies |
9. E-file 1099 Forms Securely with TaxBandits
TaxBandits, an IRS-authorized e-file provider, offers easy solutions for requesting and collecting W-9s and e-filing 1099 forms. With TaxBandits, the process of e-filing 1099 forms is simplified and time-saving. You can import information in bulk using CSV templates and files in just three simple steps, all in a matter of minutes.
- Step 1 : Create an account and select Form 1099.
- Step 2 : Enter the required 1099 Form information.
- Step 3 : Review the details and transmit the 1099 Form to the IRS and State.
Complete the compliance process by allowing TaxBandits to distribute your recipient copies by mail or through a secure online access portal.
About the Author
Stephanie Glanville is the Marketing Manager of TaxBandits. She has several years of experience with IRS tax forms and the funtionality of TaxBandits. With a passion to help business owners better understand their IRS tax forms and filing, she aims to create content that is valuable
and informative.
