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1099 for S-Corp: How to Stay Compliant with IRS Rules

What Is An S-Corporation?

An S-Corporation (S-Corp) is a domestic corporation that chooses “pass-through” tax treatment. Instead of paying federal income tax at the corporate level, its profits (or losses) flow through to shareholders and are taxed on their individual returns. This avoids the “double taxation” that applies to C-Corps.

To qualify, an S-Corp must:

  • Be incorporated in the U.S. (or an LLC electing S-Corp status via Form 2553).
  • Have no more than 100 shareholders; eligible shareholders include U.S. individuals, certain estates and trusts (QSST/ESBT), and certain tax-exempt organizations described in §1361(c)(6).
  • Offer only one class of stock.
  • File Form 1120-S annually, plus Schedule K-1s to report allocations.

Even though income passes through, the IRS still treats the S-Corp as a business entity for information-return rules. That means two things:

  1. An S-Corp may need to issue 1099s as a payer.
  2. An S-Corp may still receive 1099s when an exception overrides the corporate exemption.

Why 1099s Still Matter For S-Corporations

At first glance, payers might assume S-Corps are exempt from 1099 reporting. After all, payments to corporations are usually excluded. But the IRS has carved out several S-Corp 1099 exemptions that directly affect these entities:

  • Medical and healthcare payments (1099-MISC, Box 6).
  • Gross attorney’s proceeds (1099-MISC, Box 10).
  • Payment-card transactions (1099-K, filed by the processor).

On the flip side, do S Corps have to issue 1099? Yes, they must follow 1099 requirements for S Corp, issuing forms to contractors, landlords, attorneys, or vendors when thresholds are met. Ignoring either duty can trigger penalties of $60–$340 per return, and at least $680 for intentional disregard.

 

When An S-Corporation Must Issue 1099s

Under the 1099-NEC S-Corp rules, a payer must report non-employee compensation of $600 or more paid in the course of its trade or business, with other reportable categories outlined below.

  • Form 1099-NEC – Non-employee compensation ≥ $600 (services by contractors, consultants, freelancers).
  • Form 1099-MISC – Rent, royalties, or prizes once thresholds apply.
  • Form 1099-INT – Report when you pay $10 or more of interest in the course of business to non-corporate recipients. Most payments to corporations are not reportable, except for a few specific cases.
  • Attorney fees —  Report $600+ in legal fees on 1099-NEC, Box 1.
  • Gross attorney proceeds S-Corp — Report settlements on 1099-MISC, Box 10, even when the law firm is an S-Corp.

Compliance checklist for S-Corps issuing 1099s:

  • Collect W-9s from all vendors.
  • Run TIN matches.
  • Track cumulative payments during the year.
  • Apply backup withholding rules (24%) if a payee fails to provide a TIN.
  • E-file is mandatory if you have 10 or more information returns in total. Form 1099-NEC is due to the IRS by January 31, while most other forms, such as 1099-MISC, are due by March 31 when filed electronically.

Do Payments To An S-Corporation Require A 1099?

For most services, payments to an S-Corp are exempt. But exceptions exist:

Payment Type Form & Box Reportable? Why
Medical & healthcare 1099-MISC, Box 6 Yes ≥ $600 Corporate exemption does not apply
Attorney gross proceeds 1099-MISC, Box 10 Yes ≥ $600 Applies even if the firm is an S-Corp
Payment-card settlements 1099-K Filed by processor Payer has no 1099 duty
Non-employee services 1099-NEC No, unless exception Corporate exemption covers S-Corps, except:
(1) Federal executive agencies report services to corporations on 1099-NEC, Box 1 when ≥ $600
(2) Attorney fees for services are on 1099-NEC, Box 1
Interest 1099-INT Generally no Corporations are exempt recipients; limited exceptions (e.g., specified private-activity bond interest/OID per 1099-INT/1099-OID instructions)
Dividends 1099-DIV Generally yes Reportable when paid; see form instructions

Tip:

Always keep a valid W-9 on file. If an S-Corp mistakenly checks the “C-Corp” box, the payer could still be liable for missing forms.

So, do S-Corps receive 1099? Generally no, but exceptions (like medical or attorney payments) make it possible.

Special Forms & Boxes That Override The Corporate Exemption

Even though corporations are usually excluded, these boxes apply regardless of entity type:

  • 1099-MISC, Box 6 – Medical payments (reportable ≥ $600 even to corporations; not required to tax-exempt hospitals or facilities owned/operated by federal, state, or local governments).
  • 1099-MISC, Box 10 – Attorney proceeds S-Corp, even if incorporated.
  • 1099-K – Processors file this form for card and third-party network payments. The reporting threshold is $5,000 for 2024, $2,500 for 2025, and $600 starting in 2026. Always check the IRS’s current rule before filing.
  • 1099-B – Broker transactions, barter, or stock sales.

These thresholds are being phased in; check the IRS’s current guidance each season before filing.

Quick reference: Exceptions to the corporate exemption

Exception Form & Box Dollar trigger IRC reference
Medical & health-care payments 1099-MISC, Box 6 ≥ $600 §6041A(a)
Attorney fees (for services) 1099-NEC, Box 1 ≥ $600 §6041A(a)(1)
Attorney gross proceeds (settlements) 1099-MISC, Box 10 ≥ $600 §6045(f)
Federal executive agency payments to corporations 1099-NEC, Box 1 ≥ $600 §6041A(a) + federal agency rule
Payment card / third-party network settlements 1099-K (by processor) $5,000 (2024), $2,500 (2025), $600 (2026) §6050W
Broker & barter transactions 1099-B Any amount, when applicable §6045
Dividends 1099-DIV Any amount, when applicable §6042

Penalties & Backup Withholding

Missing or late filings cost per form:

  • $60 if corrected within 30 days.
  • $130 if corrected by August 1.
  • $340 after Aug 1 or not filed.
  • At least $680 per return for intentional disregard (no maximum).

 

Penalties are per form; a batch of 20 missed filings could mean thousands in fines.

If an S-Corp payee fails to provide a TIN, the payer must withhold 24% and still file a return. Keep copies of filed information returns and support for at least three years; keep any withholding/employment tax records for at least four years.

Real-Life Scenarios

  • S-Corp pays design LLC $1,200 – File 1099-NEC, Box 1 (1099 for S-Corp on non-employee services ≥ $600).
  • Hospital (S-Corp) receives $50,000 – Payer files 1099-MISC, Box 6 (medical payments S-Corp exception).
  • Payer settles lawsuit; $40,000 to attorney S-Corp – File 1099-MISC, Box 10 (gross proceeds).
  • Bank credits an S-Corp $12 in interest – No 1099-INT required for corporations. (Certain exceptions exist, e.g., specific bond credit situations).
  • A federal agency pays an S-Corp consultant $300 – No 1099-NEC required. Federal executive agencies must report service payments to corporations, but reporting begins at $600 total payments.

FAQs

1. Does an S-Corp ever receive a 1099-NEC?

Rarely. Only federal-agency service payments or attorney-fee reporting override the corporate exemption.

2. Do S-Corps have to issue 1099s to their shareholders?

If a shareholder performs services for the S-Corp, they are generally treated as an employee and must receive reasonable compensation via W-2 wages, not a 1099-NEC.  Paying shareholder-employees as contractors risks noncompliance.

3. What if the S-Corp paid only $500 in rent?

No 1099-MISC required unless backup withholding applied.

4. Are credit-card purchases reportable?

No. The card processor files Form 1099-K; the payer has no 1099 duty.

5. Can an S-Corp file 1099s voluntarily?

Yes. You may voluntarily file information returns, but there is no IRS instruction to label a submission ‘VOLUNTARY’.

Closing Thoughts

For S-Corps, the rules around 1099s can be tricky: most payments are exempt, but specific S-Corp 1099 exemptions still apply. And as payers, S-Corps must issue 1099s for contractor, rent, medical, or legal payments when thresholds are met.

With deadlines firm and penalties steep, preparation matters. Tax1099 simplifies the process, imports data, validates TINs, and transmits federally and to all states in minutes.