Who Is Exempt From 1099 Reporting: Corporations, LLCs, and Card Payments

Most payments to corporations, tax-exempt organizations, and government bodies fall outside 1099 reporting, and so do payments for merchandise, personal (non-business) expenses, employee wages, amounts routed through credit cards or third-party payment networks, and payments to foreign persons for services performed entirely outside the United States. On top of those categorical exemptions, the general reporting threshold rose from $600 to $2,000 per recipient for tax years beginning after 2025, so smaller payments that used to trigger a filing no longer do.¹ The rest of this article walks through who and what is exempt, and where the exemptions have teeth.

The $2,000 Threshold Comes First

Before you ask whether a payee is exempt, check the total. For 2026, you only have a potential filing obligation once payments to a single recipient reach $2,000 for the calendar year. This applies to nonemployee compensation on Form 1099-NEC and most categories on Form 1099-MISC, including rents, prizes, and other income. The threshold will adjust for inflation starting in 2027.¹

A few categories keep their own lower thresholds. Royalties and broker payments in lieu of dividends still trigger reporting at $10.² The $2,000 figure is an aggregate for the year, so add up every payment to the same recipient across all months before deciding.

Corporations Are Generally Exempt

Payments to corporations, both C-Corps and S-Corps, are generally exempt from 1099 reporting. This is the single broadest payee-based exemption, and it is the reason a Form W-9 from every vendor matters: the W-9 tells you whether the recipient is incorporated.³ If a vendor checks “C Corporation” or “S Corporation” on line 3 of the W-9, you can generally stop there, whatever the vendor sells or does.

Medical and Legal Payments Break the Rule

The corporate exemption does not apply to medical or legal payments. Medical and healthcare payments to corporations, including professional corporations, must be reported on Form 1099-MISC, Box 6. Attorneys’ fees paid to incorporated law firms must be reported on Form 1099-NEC, Box 1.⁴

Legal payments split across two forms depending on what the payment is for. Fees you pay a lawyer for their services go on Form 1099-NEC. Settlement proceeds you send to an attorney on behalf of a claimant go on Form 1099-MISC, Box 10, as gross proceeds paid to an attorney. An insurance company settling a personal injury claim for $100,000 payable to the claimant’s attorney reports that amount in Box 10 of Form 1099-MISC, not on Form 1099-NEC.⁴

LLCs Depend on How They’re Taxed

An LLC is not automatically exempt. What matters is how the LLC elected to be taxed. An LLC treated as a C-Corp or S-Corp gets the same corporate exemption. An LLC treated as a partnership or as a disregarded entity (single-member) does not, and payments to it must be reported like payments to any other non-corporate payee.⁵

Line 3 of the W-9 asks LLCs to enter their tax classification. If the box shows “C” or “S,” treat them like a corporation. If it shows “P” or the LLC is a disregarded entity, you have a reporting obligation once payments cross the threshold. Guessing based on the company name is how businesses end up either over-filing or facing penalties.

Tax-Exempt Organizations and Government Entities

Payments to organizations exempt from federal income tax under IRC section 501(a), which includes 501(c)(3) charities, are not subject to 1099 reporting.³ The same rule applies to payments to the United States government, state governments, the District of Columbia, U.S. possessions, and their political subdivisions or agencies.⁶

On the W-9, these entities check the “Exempt payee” box. If a vendor claims tax-exempt status but can’t provide a W-9 showing that designation, treat the payment as reportable until you have documentation.

Payments Exempt Because of What They Are

Even when the payee would otherwise require a 1099, the nature of the payment itself can create an exemption. The most common categories:

Payments for merchandise, inventory, or other goods you purchase for resale or business use. The 1099 system targets payments for services and certain income, not the purchase of products.
Payments for freight, storage, and telecommunications, including shipping, warehousing, and phone or internet service.
Personal payments made outside your trade or business. Hiring someone to paint your house as a personal expense is not a business payment, even if you pay them over the threshold.³
Amounts paid to employees. These go on Form W-2, not on any 1099. The entire 1099 system applies to non-employees only.⁷

The common thread is that 1099 reporting focuses on payments for services rendered by non-employees and specific income categories like rent and royalties. If the payment doesn’t fit one of the reportable boxes on a 1099 form, you don’t file one.

Card Payments and Third-Party Networks

When you pay a contractor with a credit card, debit card, or through a third-party payment network such as PayPal or Stripe, you do not issue a 1099-NEC or 1099-MISC for that payment. The reporting responsibility shifts to the payment settlement entity, which files Form 1099-K with the IRS and sends a copy to the recipient.⁴

For 2026, the 1099-K reporting threshold for third-party settlement organizations is $20,000 in gross payments and more than 200 transactions in a calendar year. The One Big Beautiful Bill retroactively reinstated this threshold, reversing the American Rescue Plan’s attempt to lower it to $600.⁸ Payment card transactions (credit and debit cards) have no minimum threshold and are reported regardless of amount.⁹

If you pay a contractor $5,000 via PayPal for the year, neither you nor PayPal may end up issuing a 1099 for that payment. You’re exempt because a TPSO handled it, and PayPal is exempt because the amount falls under the $20,000 threshold. The income is still taxable to the contractor.

Foreign Persons Paid for Work Abroad

Payments to foreign individuals and entities for services performed entirely outside the United States are generally exempt from 1099 reporting. To claim the exemption, collect the right documentation from the payee: Form W-8BEN for a foreign individual, or Form W-8BEN-E for a foreign entity. These forms certify the recipient’s foreign status and establish that the payment is not subject to domestic information reporting or backup withholding.¹⁰

Keep the W-8 forms on file. If you can’t produce one during an audit, the IRS may treat the payment as subject to both reporting and backup withholding, which means you could owe the withholding tax yourself. Foreign persons who perform services inside the United States have different documentation requirements and may need to provide Form 8233 or Form W-4 instead.

Without a W-9, No Exemption Is Safe

Every exemption on this page depends on knowing something about the payee: their entity type, tax classification, exempt status, or foreign status. The W-9 (or the appropriate W-8) is how you know.

When a U.S. payee refuses to provide a W-9 or gives you an incorrect taxpayer identification number, you cannot confirm any exemption. In that situation, you must withhold 24% of each payment as backup withholding under IRC section 3406. You then deposit those withheld amounts with the IRS and report them on Form 945 by January 31 of the following year.¹¹ The IRS will also notify you directly with a “B notice” when a payee’s TIN doesn’t match its records, and you’re required to begin withholding if the payee doesn’t correct the mismatch. Getting a signed W-9 before the first payment goes out is the cheapest way to keep every exemption above available to you.

1
Internal Revenue Service. General Instructions for Certain Information Returns (2026)
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Internal Revenue Service. About Form 1099-MISC, Miscellaneous Information
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Internal Revenue Service. Am I Required to File a Form 1099 or Other Information Return?
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Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC (04/2025)
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Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC (04/2025)
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Internal Revenue Service. Form 1099 Reporting for Federal Agencies
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Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC (Rev. April 2025)
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Internal Revenue Service. IRS Issues FAQs on Form 1099-K Threshold Under the One, Big, Beautiful Bill
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Internal Revenue Service. Understanding Your Form 1099-K
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Internal Revenue Service. Instructions for Form W-8BEN (10/2021)
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Internal Revenue Service. 2024 Instructions for Form 945