Form 1099 is just one of several statements that are issued to report activity for the prior year. When are they due? Do I have to provide them to certain people? Does an S-Corp get a 1099? We’ll discuss these topics and more.
If you are thinking about starting an S-Corp, or have business relationships with S-Corps, it is important that you understand the rules and potential reporting obligations.
Who Should Get a 1099
A “1099” is a generic term for federal forms that are sometimes required.
There are several types of Form 1099 that you may need to file and the minimum threshold amounts vary as shown below:
1099-A – Acquisition or Abandonment of Secured Property (Any amount)
1099-B – Proceeds from Broker and Barter Exchange (Any amount)
1099-C – Cancellation of Debt ($600 or more)
1099-CAP – Changes in Corporate Control and Capital Structure (Over $1,000)
1099-DIV – Dividends and Distributions ($10 or more, $600 or more for liquidations)
1099-G – Unemployment Compensation ($10 or more for refunds and unemployment)
1099-H – Health Coverage Tax Credit Advance Payments (Any amount)
1099-INT – Interest Income ($10 or more)
1099-K – Payment Card Transactions and Third-Party Network Transactions (Any amount for payment card transactions and $600 or more for third party network transactions)
1099-LS – Reportable Life insurance Sale (Any amount)
1099-LTC – Long-term Care and Accelerated Death Benefits (Any amount)
1099-MISC Miscellaneous Information ($600 or more; $10 or more for royalties)
1099-NEC – Nonemployee Compensation ($600 or more)
1099-OID – Original Issue Discount
1099-PATR – Taxable Distributions Received from Cooperatives ($10 or more)
1099-Q – Payments from Qualified Education Programs (Any amount)
1099-QA – Distributions from ABLE Accounts (Any amount)
1099-R – Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. ($10 or more)
1099-S – Proceeds from Real Estate Transactions (Generally, $600 or more)
1099-SA – Distributions from an HSA, Archer MSA, or Medicare Advantage MSA (Any amount)
1099-SB – Seller’s Investment in Life Insurance Contract (Any amount)
Form 1099-NEC and Form 1099-MISC are perhaps the most common type of Form 1099 that a small business will have to deal with. This document should be issued to those who are paid at least $600 in non-employee compensation for the year. Nonprofit organizations are not exempt and should also follow these rules.
Independent Contractors and Form 1099
If someone you hire is an independent contractor operating as a sole proprietor, meaning that they are the only owner and have not incorporated, then you should issue Form 1099-NEC if you pay them $600 or more for non-employee compensation. The $600 is an annual amount and it does not matter if you paid them by check or by cash payments on several occasions.
When a business owner informs you that he or she operates as an LLC that, by itself, is not sufficient to determine whether or not there is a reporting requirement. If that individual operates under an LLC you would still issue them 1099 unless they have elected to have their LLC taxed as a corporation. In that case their S-Corporation would not get a 1099. You would be able to determine this from the W-9 they completed.
If you hire someone who is not an employee you should have that person fill out and sign Form W-9. If that independent contractor refuses to provide a W-9 you may need to withhold federal income taxes and file Form 1099-MISC by the due date. Form 1099-NEC should be given to the person that you paid and a copy also sent to the IRS.
It is important to report payments when required and stay on the right side of the Internal Revenue Service whenever possible.
The independent contractor can provide their social security number (SSN) or their employer identification number (EIN) on their W-9.
Form 1099-MISC
Form 1099-NEC is a relative new form. Prior to 2020 non-employee compensation was reported on Form 1099-MISC. However, Form 1099-MISC is the reporting form for several other types of transactions including:
- Rents
- Royalties
- Tax withheld from payments to non-employees
- Fishing boat proceeds
- Medical and healthcare payments
- Direct sales of at least $5,000 for consumer products for resale
- Substitute payments in lieu of dividends or interest
- Crop insurance proceeds
- Payments of at least $600 to an attorney
- Payments of at least $600 or more for the resale of fish
- Section 409A deferrals
- Excess golden parachute payments
- Nonqualified deferred compensation
S-Corp Form 1099 Exceptions
Like many tax rules, there are exceptions. If an attorney, physician or medical care provider operates as a corporation you should still give them a 1099 if you paid them $600 or more in the course of your trade or business. A law firm or other provider of legal services would still be considered an attorney in this case. (The physician or medical care provider would be issued Form 1099-MISC instead of Form 1099-NEC).
Penalty for Filing Form 1099 Late
The due date to submit a 1099 to the recipient and to the Internal Revenue Service is January 31 so plan ahead. If January 31 falls on a weekend or holiday on any given year then the due date automatically extends to the next business day.
The penalty for not furnishing Form 1099-NEC by the due date is now $60. The penalty increases to $120 if late more than 30 days through August 1 and $310 thereafter. Be aware that the IRS can slap you with $630 penalty if they determine that there was willful intent to not provide the 1099. The penalty is assessed on EACH 1099 that is late and interest accrues on the amount penalized.
In certain circumstances penalties may be waived.
Common S-Corp and 1099 Questions
What if the person I hired gives me a W-9 but the tax ID that they provide is not correct?
When this happens the IRS may send you a letter to inform you that the name and tax identification numbers that you filed on your Form 1099 do not match their records. If you receive such a letter you may have to request a “B” notice to whomever you paid in order to secure the correct name and social security number or EIN combination.
What if the person does not operate as an S-Corp but I paid them more than $600 over several payments?
Once you go over that threshold for the year you will have a filing requirement.
Do I need to send the 1099 to the State?
State deadlines may be different federal due dates so it is best to check with the State’s tax and revenue department to verify their specific requirements.
Do I need to give a 1099 to an independent contractor that I paid through Cash App or PayPal?
If you paid someone for services through Cash App, PayPal, Venmo and other payment settlement entities you do not need to send them a 1099. The payment settlement entity will be responsible for issuing Form 1099-K to report that activity.
What should I do if I filed a 1099 to corporation by mistake?
You can submit another 1099 and mark “Corrected” to amend the previous filing.
Disclaimer: Information provided on this website is for educational purposes only. Tax situations vary. Please consult your tax professional to determine what is best for you.