When it comes to tax season, understanding the intricacies of various IRS forms is crucial for any business owner. One common question that arises is, “does an S Corp receive a 1099?” To answer this, we need to delve into the IRS guidelines and specific scenarios where an S corp might be required to receive a Form 1099.

What is an S Corporation?

An S corporation (S corp) is a special type of corporation created through an IRS tax election. By electing to be an S corp, a company can pass corporate income, losses, deductions, and credits through to their shareholders for federal tax purposes. Shareholders of S corps report the flow-through of income and losses on their personal tax returns and are assessed tax at their individual income tax rates. This allows S corps to avoid double taxation on corporate income as well as avoiding LLC’s self-employment tax (approx. 14.13% on business profits).

Understanding Form 1099

Form 1099 is a series of documents the IRS refers to as “information returns.” Various types of 1099 forms report different types of income other than wages, salaries, and tips. For example, Form 1099-MISC reports miscellaneous income, while Form 1099-NEC reports non-employee compensation.

General Rule for S Corps and Form 1099

According to IRS guidelines, payments made to corporations, including S corporations, are exempt from 1099 reporting requirements. This means that in most cases, an S corp will not receive a 1099 form. However, there are important exceptions to this rule.

Exceptions Where an S Corp Might Receive a 1099

1. Legal Services: Payments for legal services must be reported on a 1099, regardless of whether the payment is made to an S corp. Therefore, if your S corp provides legal services, expect to receive a Form 1099-NEC or 1099-MISC.

2. Medical and Healthcare Payments: Payments made to corporations providing medical and healthcare services must also be reported on Form 1099-MISC. If your S corp operates in the healthcare industry, it will likely receive a 1099.

3. Substitute Payments: Substitute payments in lieu of dividends or tax-exempt interest are required to receive a 1099.

4. Fishing Boat Proceeds: Payments related to fishing boat proceeds may require 1099 reporting, even if the recipient is an S corp.

Why These Exceptions Exist

The IRS has established these exceptions to ensure that certain types of payments are adequately reported, regardless of the recipient’s corporate structure. These rules help the IRS track income that might otherwise go unreported, thereby promoting compliance and accurate tax reporting.

Best Practices for S Corps

Even though most payments to S corps do not require 1099 reporting, it’s essential for S corporation owners to be aware of the exceptions. Here are some best practices:

• Consult a Tax Professional: Always consult with a CPA or tax professional to ensure compliance with IRS regulations and to stay updated on any changes to the tax code.
• Keep Accurate Records: Maintain detailed records of all income and expenses to ensure accurate tax reporting.
• Obtain W-9s for All Vendors: Request and obtain signed W-9s from each vendor prior to making their first payment. The W-9 will indicate the entity type of the vendor so you can decide if a 1099 is required to be sent.
• When in Doubt, Issue a 1099: There’s no penalty for issuing too many 1099s, only too little. When in doubt, send the 1099. 

Conclusion

While S corps generally do not receive Form 1099s, there are specific exceptions that business owners must be aware of. By understanding these exceptions and following best practices, S corp owners can ensure compliance with IRS guidelines and avoid potential tax issues. Also, if your business is an S corp, and you receive a 1099, don’t worry. As long as the income reported on the 1099 received is included within income on your S corporation tax return, you have met the IRS requirement.

If you have any questions about “does an S corp receive a 1099?”, 1099 reporting, or need assistance with your S corp’s tax filings, don’t hesitate to reach out to a qualified CPA or tax professional.