One of the complexities of managing a company is dealing with various details when filing your business tax return, such as tracking your deductible business expenses and filing necessary tax forms for any employees, vendors or contractors that have provided products or services to your business during the year.
One of the most common tax forms that business owners need to file for their vendors and independent contractors and subcontractors is the 1099 form, commonly known as Form 1099-MISC.
But sometimes it can be complicated to figure out who gets a 1099 form at tax time. What if your contractors are incorporated as an LLC or S Corporation? Do LLCs get 1099 forms? What companies need a 1099? Who gets a 1099 form, and who does not?
This quick guide can help you understand who gets a 1099 among your contractors and vendors, and how filing the right forms for the right people can help your business save time and money during tax season.
What Is Form 1099?
The 1099 is a form that business owners need to file with the IRS to make an official record of payments made to independent contractors (non-employees) during the tax year. The 1099 works in the same way as a W-2 form for employees’ wages, but for people who are not classified as employees: it gives the IRS proof of their income to be confirmed on the contractor/vendor’s tax return.
When Do You Issue a 1099 Form?
In general, any time your business buys products, rent or services that total more than $600 from a single individual or limited liability company (LLC) during a calendar year, you need to file a 1099 form for that vendor or contractor.
Form 1099 generally needs to be issued to taxpayers by January 31 each year. These are the 2020 deadlines to file a copy of the 1099 with the IRS: "File Form 1099-MISC by March 1, 2021, if you file on paper, or March 31, 2021, if you file electronically."
Who Gets a 1099 Form?
The 1099 form is generally intended to be filed for “persons” who provide goods or services to your company. But anyone who receives a 1099 should not be an employee; these forms are only issued to people who are classified as independent contractors. Different types of workers are often referred to by the classification of their tax status, such as “1099 vendors” or “W-2 employees.”
Do Sole Proprietors Get a 1099?
If your contractors are sole proprietors who do not have a business entity set up for their business, you must file a 1099 form for them. This is one of the most common 1099 situations. They are filing taxes as individual people who do not have a business structure; they are not classified as employees, so they do not get a W-2. These sole proprietor 1099 vendors need to get a 1099 to record and report their income for tax purposes.
Do LLCs Need 1099 Forms?
Sometimes! However, if your contractors are set up to do business as LLCs, it gets a bit more complicated. There is no simple answer to the question of “Do LLCs get 1099 forms?” Not all LLCs are set up for the same tax treatment. Whether or not you have to file a 1099 for your LLC contractors depends on how their LLCs file their taxes.
If your contractor files taxes as a single-member LLC, they are considered a “disregarded entity” (with all the income simply passing through to the LLC owner’s individual tax return), and in this case, the LLC can be considered a “person” for tax purposes and you should file a 1099 for them.
If your contractor is an LLC that files taxes as a corporation (S Corporation or C Corporation), they are treated as a corporation for tax purposes and this means that they generally do not have to receive a 1099.
Do S Corps Get 1099 Forms?
According to IRS instructions, in general, payments to S Corporations do not have to be reported on a 1099 form. You should still report these payments as part of your business expenses, and your S Corp contractor should, of course, still report their income on their tax return, even if no S Corp 1099 is required.
However, there are a few specific types of payments made to corporations by your business, including payments to S Corporations, which would require you to report the payment on an S Corporation 1099:
Box 6: Medical and health care payments
Box 8: Substitute payments in lieu of dividends or tax-exempt interest
Box 10: Gross proceeds paid to an attorney
But in general, unless your payments to an S Corp do not fall into one of those specific categories, your contractor would not be considered a 1099 vendor and this would not be a situation when you are required to issue a 1099.
How Do You Find Out If Your Contractor’s LLC Gets a 1099?
If you’re trying to figure out if your contractor’s LLC gets a 1099 form or not, ask your contractors to fill out an IRS Form W-9, “Request for Taxpayer Identification Number and Certification.”
This is a standard step in getting ready for tax time. Having your contractors fill out a W-9 for LLC vendors will help you determine if they need a 1099.
On the W-9 form, your contractors have to check a box showing how their business is set up for tax purposes:
If the contractor does business as an LLC, they must also check a box on the Form W-9 to show whether the LLC is taxed as a corporation or partnership. If the box is checked to show that the LLC is taxed as a corporation (C Corporation or S Corporation), then you do not have to file a 1099 for that contractor.
Do partnerships get 1099 forms? Yes. If the LLC is taxed as a partnership or is a single-member LLC (disregarded entity), the contractor needs to receive a 1099 form.
The simple rule of thumb is: If the LLC files as a corporation, then no 1099 is required. But for all other contractors who are set up as LLCs (but not filing as corporations), they are considered 1099 vendors and your business will need to file 1099 forms for them.
What Happens If I File a 1099 for a Contractor’s LLC That Doesn’t Require One?
Sometimes contractors might check the wrong box on their Form W-9 or not file a W-9 in time; if you have any doubt as to whether or not your contractors should get a 1099, it’s often best to just go ahead and file the 1099 forms for them.
Even if it turns out that your contractors do not require the 1099, you will not be penalized for filing these “extra” forms. However, if your contractors were supposed to get a 1099 and you did not file one, you risk having to pay a penalty to the IRS of $100 for each 1099 that was not filed.
Try to get your contractors to clarify their tax status by filling out Form W-9 (which you keep with your business records). But if you’re not certain about your contractors’ tax statuses, it’s often a good idea to just go ahead and file 1099 forms for them, even if they do not require one. This way you are covered, and you can avoid paying penalties to the IRS.
Figuring out who gets a 1099 at tax time doesn’t have to be overly complicated. With some advance planning, you can make sure to take care of your tax reporting requirements for your 1099 vendors and help everyone save time and avoid extra stress during tax season. Incfile has Business Accounting Services that can answer any questions you may have and file your business taxes for you.
Ben Gran is a freelance writer from Des Moines, Iowa. Ben has written for Fortune 500 companies, the Governor of Iowa (who now serves as U.S. Secretary of Agriculture), the U.S. Secretary of the Navy, and many corporate clients. He writes about entrepreneurship, technology, food and other areas of great personal interest.