In most cases, S corps do not get a 1099-NEC. The IRS exempts payments to corporations, including S corporations and C corporations, from Form 1099-NEC reporting for services performed in the course of your trade or business. That exemption has real exceptions, though, and a few payment types trigger a 1099 regardless of whether the payee is incorporated.
Why S Corporations Are Exempt
The exemption exists because corporations already report their income directly to the IRS. An S corporation files Form 1120-S, which lays out gross receipts, deductions, and the income allocated to each shareholder. A C corporation files Form 1120. Layering a 1099-NEC on top would duplicate what those returns already show.1Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC (04/2025)
The exemption covers both S corporations and C corporations, including an LLC that has elected to be taxed as either. Pay an S corp consulting firm $50,000 for the year, and you owe no 1099-NEC. The same is true for a C corp software developer or an LLC that checked the “S corporation” box on its tax election.
The entities that do receive 1099-NECs are individuals, sole proprietors, partnerships, estates, and LLCs taxed as sole proprietorships or partnerships.1Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC (04/2025)
When an S Corporation Does Get a 1099
The corporate exemption has hard exceptions. These are the situations that trip up most filers.
Attorney Fees
Any payment of $2,000 or more for legal services must be reported on Form 1099-NEC, Box 1, even when the law firm is an S corporation or C corporation. The IRS instructions are explicit that the corporate exemption does not apply to payments for legal services.1Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC (04/2025) Contract review, litigation defense, general counsel work — if you paid a corporate law firm for it, you file a 1099-NEC.
Gross Proceeds Paid to an Attorney
Settlement money routed through an attorney is treated differently from fees for the attorney’s own services. When you pay an attorney as part of a settlement rather than for legal work performed for you (for example, an insurer sending $100,000 to a claimant’s attorney to resolve a claim), you report the full amount in Box 10 of Form 1099-MISC as gross proceeds. This applies even if the attorney operates as a corporation.2Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC (Rev. April 2025) Fees for legal services go on 1099-NEC Box 1; settlement proceeds go on 1099-MISC Box 10.
Medical and Health Care Payments
Payments of $600 or more to a physician or other health care provider must be reported on Form 1099-MISC, Box 6, even if the provider is incorporated.1Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC (04/2025) This catches businesses that pay for employee physicals, drug testing, or on-site medical services through an incorporated medical practice. The threshold here is $600, not the $2,000 that applies to 1099-NEC nonemployee compensation.
Substitute Payments in Lieu of Dividends
Aggregate payments of $10 or more in substitute dividends or tax-exempt interest resulting from securities lending must be reported on Form 1099-MISC, Box 8, even to corporate recipients.3Internal Revenue Service. About Form 1099-MISC, Miscellaneous Information This mostly affects brokerages and financial services firms.
Confirm the Corporate Status Before You Skip the 1099
You can’t take a payee’s word that they are an S corporation. Collect a completed Form W-9 before making payment. The W-9 asks the payee to identify their entity type and provide their taxpayer identification number, which for an S corp is its Employer Identification Number.4Internal Revenue Service. Instructions for the Requester of Form W-9 (Rev. March 2024)
p>An LLC taxed as an S corporation checks the LLC box on line 3a and enters “S” in the tax classification field. A standalone S corporation checks the “S Corporation” box. If the payee checks a different box, such as “Individual/sole proprietor,” you cannot treat them as exempt, even if they say they’re incorporated.
Keep every W-9 on file for at least four years after the last tax year it was relevant. If the IRS later asks why no 1099 went out, the W-9 is your evidence that the payee certified corporate status.4Internal Revenue Service. Instructions for the Requester of Form W-9 (Rev. March 2024) If a payee fails to provide a correct TIN or doesn’t return the W-9 at all, backup withholding applies: you must withhold 24% of each payment and remit it to the IRS until the issue is resolved.5Internal Revenue Service. Backup Withholding
Payments Made by Card or Payment App Don’t Count
Even when a payment would otherwise require a 1099-NEC, you do not file one if you paid by credit card, debit card, or through a third-party payment network such as PayPal or Venmo for Business. Those transactions are reported by the payment processor on Form 1099-K, and the IRS does not want the same money reported twice.1Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC (04/2025)
This rule applies regardless of the payee’s entity type. If you pay a non-corporate contractor $5,000 through PayPal, the processor handles the reporting. You issue 1099-NECs only for payments made by check, cash, ACH, or wire.
Rent and Royalties Paid to an S Corp
Rent and royalties paid to an S corporation generally do not trigger a 1099-MISC. The IRS instructions list the specific payment types that override the corporate exemption on 1099-MISC: medical and health care payments, gross proceeds to attorneys, substitute payments in lieu of dividends, and cash payments for fish purchases.2Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC (Rev. April 2025) Rent and royalties are not on that list, so the corporate exemption applies.
If you lease office space from an S corporation or pay it royalties, no 1099-MISC is required. You would file only if the landlord or licensor were an individual, sole proprietor, partnership, or LLC not taxed as a corporation.
The $2,000 Threshold for Payees Who Aren’t Exempt
For payees that do receive 1099-NECs, the reporting threshold changed for 2026. The old $600 minimum has been replaced by $2,000 for payments made after December 31, 2025.6Internal Revenue Service. 2026 Publication 1099 The change was enacted under P.L. 119-21 and will be adjusted for inflation beginning in 2027.7Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
The threshold is per payee: aggregate all payments to the same person or entity for the calendar year and compare the total to $2,000. This threshold has no effect on whether S corporations are exempt. It matters when you are paying individuals, sole proprietors, partnerships, or LLCs taxed as partnerships, which are the entities that actually receive 1099-NECs.
If You Already Sent a 1099-NEC to an S Corp by Mistake
Issuing an unnecessary 1099-NEC to an exempt S corporation creates a mismatch with the payee’s records and generally calls for a corrected return. To fix an incorrect payee, the process is two steps: first, file a corrected form using the original (wrong) payee information with all dollar amounts zeroed out; second, file a brand-new original form (without the “CORRECTED” box checked) with the correct payee information and amounts.8Internal Revenue Service. General Instructions for Certain Information Returns If the original was filed electronically, the correction must be electronic too.
The reverse mistake carries real cost. Skipping a 1099-NEC for attorney fees paid to an S corporation is a violation, and the IRS penalties for missed information returns are assessed per form.9Internal Revenue Service. Information Return Penalties When in doubt about whether a payment to a corporation falls into one of the exceptions, file the 1099.