Do We Have to Issue a 1099 to an S-Corp?

Small business and corporations generally use a number of service providers and contractors to perform tasks that the company either cannot do internally or chooses not to do. These tasks range from strategic planning and analysis to construction services to streamlining operations. Many of these tasks are done by independent contractors. The IRS mandates that you issue 1099s to these independent contractors, but there are exceptions for S corporations.

The 1099-MISC operates like a W-2 for independent contractors. Hence, the IRS exempts corporations, which have stringent federal and state administrative and reporting requirements, where it does not exempt LLCs and LLPs. Only certain payments, like those exceeding $600 in attorney fees or cash paid for fish, require the issuance of a 1099-MISC. Medical and healthcare-related fees over $600 paid to medical facilities, physician groups and medical care providers operating as corporations also require 1099 filings.

The rules for corporations apply to S corporations, which are corporations that elect subchapter S status under IRS regulations. S corporations avoid the double taxation of C corporations by allowing the flow-through of the corporate net income to the shareholders. Although the IRS limits the number of shareholders and the classes of stock, these limitations in no way impact an S corporation's treatment under 1099 rules.

There are situations in which S corporations receive 1099s other than Form 1099-MISC. If you cancel debt in excess of $600 owed to you by an S corporation, you must issue a 1099-C. If the S corporation sells or abandons secured property to you, you must issue a 1099-A. If you engaged in a barter exchange with an S corporation, you will need to provide a 1099-B. Any amount in merchant card payments or third party network payments of $20,000 or more and 200 or more transactions made to S corporations require the issuance of a 1099-K.

If you are unsure whether a business is an S corporation or a different legal form, then you may wish to exercise caution. Request a W-9, which requires the service provider's full name and employee identification number, or EIN. This document thus furnishes the information needed to determine whether or not the company is an S corporation. If the company is not, then you will use the W-9 to complete the 1099-MISC when due. If you need to issue a 1099-C, 1099-S or 1099-K, you can also use the W-9 information to complete those forms.