LLCs taxed as sole proprietorships or partnerships must receive a 1099 when paid $600 or more for services in a year; C corporations and S corporations generally do not, and neither do LLCs that have elected to be taxed as a corporation. The question of whether LLCs and C corps get a 1099 turns on the recipient’s federal tax classification, the type of payment, and how the payment was made. Attorney fees and medical payments are the two exceptions most businesses run into, because they require a 1099 even when the recipient is a corporation.
How an LLC’s Tax Classification Decides the Answer
An LLC is a state-law entity, not a federal tax category. The IRS looks past the “LLC” label and treats the company as one of three things.
Single-Member LLCs
By default, a single-member LLC is a disregarded entity. The owner and the business are one taxpayer, and business activity flows onto the owner’s personal return, typically Schedule C.1Internal Revenue Service. Single Member Limited Liability Companies Treat these LLCs like sole proprietors: issue a 1099-NEC when you’ve paid $600 or more for services.
Multi-Member LLCs
A multi-member LLC that hasn’t elected corporate status is a partnership for federal tax purposes.2Internal Revenue Service. LLC Filing as a Corporation or Partnership Partnerships are not exempt from 1099 reporting, so a 1099-NEC or 1099-MISC is required once the $600 threshold is met.
LLCs That Elected Corporate Status
An LLC can elect to be taxed as a C corporation by filing Form 8832, or as an S corporation by filing Form 2553.3Internal Revenue Service. About Form 8832, Entity Classification Election Once that election is in effect, the LLC follows the same 1099 rules as any other corporation and generally does not receive one.4Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC
The Corporate Exemption
Payments to C corporations and S corporations are generally exempt from 1099 reporting. Under federal regulations, a payer does not file a 1099 for payments to an incorporated business regardless of the amount.5Internal Revenue Service. Am I Required to File a Form 1099 or Other Information Return? That covers traditional C corps and S corps as well as LLCs that have elected corporate treatment.
The exemption is not absolute. Several categories of payments override it, and you have to issue a 1099 to a corporation anyway.
Payments to a Corporation That Still Require a 1099
Even when the recipient is a C corp or an S corp, the following payments must be reported:4Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC
- Attorney fees of $600 or more for legal services, reported on Form 1099-NEC (Box 1), regardless of how the law firm is organized. Gross proceeds paid to an attorney, such as settlement funds routed through a firm, go on Form 1099-MISC (Box 10).
- Medical and health care payments of $600 or more to a corporation, reported on Form 1099-MISC (Box 6). Hospitals and extended care facilities that are tax-exempt under Section 501(c)(3) or that are owned and operated by a government entity are excepted and do not require a 1099.
- Cash payments for the purchase of fish for resale, reported on Form 1099-MISC (Box 11).
- Substitute payments in lieu of dividends or tax-exempt interest, reported on Form 1099-MISC (Box 8).
- Payments by federal executive agencies to corporations for services, reported on Form 1099-NEC (Box 1).
The attorney fee rule catches the most businesses. Pay $1,000 to a law firm organized as a C corporation for legal work, and a 1099-NEC is still required.
Payments That Never Require a 1099
Two carve-outs apply no matter who the vendor is, and both come up often enough that they’re worth checking before you start pulling W-9s.
Payments for goods and merchandise are not reportable, even above $600. The same is true for telephone, freight, and storage.4Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC Buying $10,000 in office supplies doesn’t generate a 1099. Only services, rent, and certain other income categories do.
Payments made by credit card, debit card, or a third-party payment network like PayPal or Venmo are also excluded from 1099-NEC and 1099-MISC reporting. Those transactions are reported by the payment settlement entity on Form 1099-K, and duplicating them on a 1099-NEC would double-report the income.4Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC
Payments to tax-exempt organizations under Section 501(a), to IRAs, and to federal, state, local, and foreign governments also do not require a 1099.6Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC
Use Form W-9 to Confirm a Vendor’s Status
You find out how a vendor is classified by collecting Form W-9 before you pay them. The vendor supplies their legal name, Taxpayer Identification Number, and federal tax classification.7Internal Revenue Service. Form W-9 (Rev. March 2024) Request for Taxpayer Identification Number and Certification
Line 3a is the field that decides the question. A vendor checks one box: individual/sole proprietor, C corporation, S corporation, partnership, or LLC. If the vendor checks LLC, they must also enter “C,” “S,” or “P” to show whether the LLC is taxed as a C corporation, S corporation, or partnership.8Internal Revenue Service. Instructions for the Requester of Form W-9 A “C” or “S” tells you the corporate exemption applies; a “P” tells you it does not.
Verify that the name on the W-9 matches the TIN. A mismatch can trigger an IRS B-Notice and require you to start backup withholding at 24% on future payments.9Internal Revenue Service. Backup Withholding The IRS runs a free TIN Matching Program through its e-Services portal that returns results on up to 25 name/TIN combinations instantly, or up to 100,000 within 24 hours through a bulk upload.10Internal Revenue Service. Taxpayer Identification Number (TIN) Matching Tools
When a Vendor Won’t Return a W-9
Refusal to hand over a W-9 doesn’t excuse you from reporting. You must begin backup withholding at 24% on all reportable payments to that vendor immediately, and if you fail to withhold when required, you can be personally liable for the amount you should have withheld.8Internal Revenue Service. Instructions for the Requester of Form W-9
Amounts withheld are deposited with the IRS and reported on Form 945, the Annual Return of Withheld Federal Income Tax.11Internal Revenue Service. Instructions for Form 945 You still file the 1099 at year-end with whatever information you have. Collecting the W-9 up front, before any significant payment goes out, is the way to avoid the problem entirely.