Is an S Corp 1099 Eligible? Rules, Exceptions, and Penalties

In most cases, an S corporation does not get a 1099. The IRS generally exempts corporations, including S corporations, from receiving Form 1099-NEC or 1099-MISC because they file their own corporate returns. But that exemption has real exceptions: attorney fees, medical and health care payments, and several narrower categories still require a 1099 even when the payee is an S corp.¹

For payments made after December 31, 2025, the general reporting threshold under 26 U.S.C. § 6041 rose from $600 to $2,000.² That is the number that matters when you’re deciding whether an exception has been triggered for the 2026 tax year.

The General Rule

If you hire an S corporation for consulting, IT work, marketing, software development, or almost any other business service, you are not required to issue a 1099-NEC. This is true no matter how much you paid them. The corporate exemption applies to both C corporations and S corporations, and the rationale is that the corporation is already reporting the income on its own return.¹

What you do need is documentation that the payee actually is a corporation. Collect a completed Form W-9 from every vendor before you release the first payment. The W-9 shows the entity’s tax classification and taxpayer identification number, which is what tells you a 1099 isn’t required.³

Skipping the W-9 creates two problems. First, without it you have no proof the payee was a corporation, so if the IRS asks why you didn’t file a 1099, you have no defense and could face penalties for the missing form. Second, if a payee refuses to provide a W-9 or gives you an incorrect TIN, you may be required to begin backup withholding at 24% on future payments and remit that money to the IRS.⁴

Exceptions That Require a 1099 Anyway

The corporate exemption has carve-outs the IRS treats as high-risk categories, and these override the general rule regardless of the recipient’s corporate status.¹

Attorney Fees and Legal Settlements

Any payment of $2,000 or more to a law firm for legal services must be reported in Box 1 of Form 1099-NEC, even when the firm is an S corporation. The rule applies to sole practitioners, LLPs, and incorporated firms alike.⁵

Gross proceeds paid to an attorney in connection with a legal settlement follow a different rule and belong in Box 10 of Form 1099-MISC, not on the 1099-NEC.⁵ If you’re paying a law firm’s invoice for services rendered, that’s Box 1 on the 1099-NEC. If you’re cutting a settlement check routed through an attorney, that’s Box 10 on the 1099-MISC. Wrong form or wrong box usually generates an IRS correction notice.

Medical and Health Care Payments

Payments of $2,000 or more to an S corporation for medical or health care services must be reported in Box 6 of Form 1099-MISC. The category is broad and includes physician practices, laboratories, and other health providers organized as corporations.⁵⁶

Fish Purchased for Resale

Businesses that buy fish for resale must report cash payments of $2,000 or more to anyone in the trade of catching fish in Box 11 of Form 1099-MISC. Do not confuse this with Box 5, which is reserved for fishing boat proceeds paid to crew members.⁵

Other Exceptions

Several less common payment types also require reporting to corporate payees:

Substitute payments in lieu of dividends or tax-exempt interest, reported in Box 8 of Form 1099-MISC.
Cancellation of debt, reported on Form 1099-C.
Broker and barter exchange transactions involving S corporations, reported on Form 1099-B.
Federal executive agency payments for services, reported on Form 1099-MISC.

The full list appears in the IRS General Instructions for Certain Information Returns.¹ When a payment type isn’t obvious, check the instructions for the specific form rather than assuming the corporate exemption covers everything.

Credit Card and Payment App Payments Are Different

The method of payment can change who has the reporting obligation. If you pay an S corporation through a credit card, debit card, or third-party payment network such as PayPal, you generally do not issue a 1099-NEC even if the payment would otherwise be reportable under one of the exceptions above. Section 6050W puts that reporting on the payment processor, which issues a 1099-K to the recipient. The IRS does not allow the same transaction to be reported twice.⁷

So the same S corp attorney invoice could require a 1099-NEC from you if paid by check and no 1099 from you at all if paid by credit card. Collect the W-9 anyway. You need it for your records, and payment methods change over the course of a relationship.

Penalties for Missing or Late Forms

The IRS assesses information return penalties per form, so the cost climbs quickly when an exception applies to multiple vendors. For returns due in 2026, the penalty tiers are:⁸

Filed within 30 days of the deadline: $60 per form.
Filed 31 days late through August 1: $130 per form.
Filed after August 1 or never filed: $340 per form.
Intentional disregard: $680 per form, with no maximum cap.

These penalties apply separately to the copy filed with the IRS and the copy furnished to the recipient, so a single missed form can generate two penalties. Intentional disregard is reserved for willful failures rather than paperwork mistakes, and the usual annual caps disappear once the IRS applies that category.⁸ Filing a corrected form promptly after spotting an error can keep you in a lower tier, which is one reason to reconcile your vendor list against your 1099 filings before the January 31 deadline rather than after.

1
Internal Revenue Service. General Instructions for Certain Information Returns
2
Office of the Law Revision Counsel. 26 U.S. Code 6041 – Information at Source
3
Internal Revenue Service. Instructions for the Requester of Form W-9
4
Internal Revenue Service. Backup Withholding
5
Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC
6
Internal Revenue Service. About Form 1099-MISC, Miscellaneous Information
7
Internal Revenue Service. IRC Section 6050W Frequently Asked Questions
8
Internal Revenue Service. Information Return Penalties