Introduction
Every year, businesses across the United States face the same question as tax season approaches: Does an incorporated company get a 1099? This seemingly simple question has complex implications for business owners, accountants, and contractors alike. Understanding the answer requires exploring tax rules, business structures, and IRS expectations.
In this comprehensive guide, we’ll uncover when and why a 1099 is required, how incorporation status affects it, and what exceptions exist. Whether you’re a business owner issuing payments or an incorporated contractor receiving them, this guide will clarify the responsibilities and help ensure compliance with IRS regulations.
What Is a 1099 Form?
Understanding 1099 Basics
The 1099 form is an IRS document used to report various types of non-employee income. There are multiple variations of this form, but the two most commonly used in business-to-business transactions are:
- Form 1099-NEC: Used to report payments to independent contractors and non-employees for services.
- Form 1099-MISC: Used for reporting other miscellaneous payments like rent, legal fees, and prizes.
These forms are issued by a payer (usually a business) to a payee (typically an individual, partnership, or non-corporate entity) when payments total $600 or more in a calendar year.
What Does It Mean to Be an Incorporated Company?
Defining Incorporated Entities
An incorporated company is a business that has registered with a state as a corporation, such as a C corporation or S corporation. It may also include LLCs that elect to be taxed as corporations. These entities are considered separate legal and taxable entities from their owners.
Incorporated businesses benefit from:
- Limited liability
- Separate tax filing
- Greater credibility
- Access to corporate deductions and benefits
Because of their structure, they are taxed differently than sole proprietors or partnerships, which has implications for whether or not they should receive a 1099.
Does an Incorporated Company Get a 1099?
The General Rule: No
According to IRS guidelines, you do not need to issue a 1099-NEC or 1099-MISC to most incorporated companies. This includes:
- C corporations
- S corporations
- LLCs taxed as corporations
This rule is based on the assumption that incorporated entities are already filing their own corporate tax returns and reporting income appropriately.
The Logic Behind the Rule
The IRS requires 1099s primarily for non-incorporated vendors, where the risk of underreporting is higher. Since corporations have more structured financial oversight and dedicated tax responsibilities, the IRS exempts most of them from 1099 reporting to reduce redundancy and paperwork.
Important Exceptions: When Corporations Do Get a 1099
Despite the general exemption, there are critical exceptions where even incorporated businesses must receive a 1099 form. These apply in specific industries or service categories.
1. Legal Services
If you paid $600 or more for legal services, you must issue a 1099 even if the law firm is incorporated.
- Applies to law firms and individual attorneys
- Includes payments for settlements, retainers, or litigation
The IRS enforces this rule strictly due to the high volume and financial nature of legal transactions.
2. Medical and Healthcare Services
Payments to medical service providers must be reported on Form 1099-MISC, regardless of incorporation status.
This includes:
- Doctors
- Clinics
- Hospitals
- Psychologists
- Physical therapists
These types of payments are viewed as high-priority reporting for tax and compliance purposes.
3. Fishing Boat Proceeds and Royalties
Although less common, certain royalty payments or payments related to fishing boat proceeds may still require reporting—even if paid to a corporation.
4. Substitute Payments in Lieu of Dividends
Substitute payments made by brokers to corporations may still require 1099 reporting.
LLCs and 1099s: A Special Case
Not All LLCs Are the Same
LLCs are unique because they can choose how they are taxed:
- Single-member LLC (disregarded entity) → Treated like a sole proprietorship
- Multi-member LLC → Treated like a partnership
- LLC taxed as a corporation → Treated like a corporation
Only LLCs taxed as corporations are exempt from receiving 1099s. If the LLC is taxed as a sole proprietorship or partnership, then you must issue a 1099 if payments exceed $600.
To determine this, you must examine the Form W-9 provided by the LLC.
Role of Form W-9 in Determining 1099 Requirements
What Is a Form W-9?
A Form W-9 is a document that a vendor, contractor, or service provider fills out to give their tax classification and TIN (Taxpayer Identification Number) to the payer. This form is critical in determining whether a 1099 is required.
On the form, the vendor must:
- Indicate their business entity type (Individual, Corporation, Partnership, etc.)
- Provide their tax classification
- Certify that the information is correct
Why It Matters
The W-9 tells you if the company is:
- A corporation → No 1099 needed (except for exceptions)
- An individual or sole proprietor → 1099 required
- A partnership → 1099 required
- An LLC taxed as corporation → No 1099 needed
- An LLC taxed as individual or partnership → 1099 required
Always collect and review the W-9 before making payments, especially for contractors and vendors.
What Payments Require a 1099?
Types of Payments That Usually Require a 1099-NEC
- Fees for services provided by freelancers or independent contractors
- Payments for commissions or referral bonuses
- Professional fees for accountants, consultants, designers, and developers
- Payments to unincorporated vendors or service providers
Payments That Do Not Require a 1099
- Payments to corporations (with exceptions)
- Payments made via credit card or third-party payment processors (reported on Form 1099-K instead)
- Purchases of physical goods or products
- Employee wages (reported on Form W-2 instead)
Penalties for Incorrect 1099 Filing
Filing a 1099 incorrectly or failing to issue one when required can lead to significant IRS penalties.
Common Penalties Include:
- Late Filing Penalty: $60–$310 per form depending on how late it is
- Failure to File at All: $630+ per recipient
- Intentional Disregard: Can exceed $1,000 per return
To avoid penalties, make sure to:
- Collect Form W-9 from every vendor
- Track payments accurately
- File 1099s on time
- Maintain proper documentation
Best Practices for Businesses
1. Create a Vendor Onboarding Process
Collect W-9 forms from all vendors before you make the first payment. This saves time and avoids confusion during tax season.
2. Use Accounting Software
Modern accounting software can help you track payments, categorize vendors, and automatically generate 1099s at year-end.
3. Review 1099 Exceptions Regularly
IRS rules can change. Always stay informed about who qualifies for 1099 exemptions.
4. Keep Records Organized
Store copies of W-9s, payment logs, and any issued 1099 forms for at least four years, in case of audit.
5. Consult a Tax Professional
If you’re unsure whether to issue a 1099 to a particular vendor, consult a qualified accountant or tax advisor to avoid mistakes.
Frequently Asked Questions
Do I need to send a 1099 to a company with “Inc.” or “Corp.” in its name?
Usually not. If the company is a C Corp or S Corp, they are exempt from 1099 reporting unless they fall under one of the exception categories, like legal or medical services.
Do I need to send a 1099 to a freelancer who is incorporated?
No, unless the freelancer operates in an excepted field (like law or medicine). If they are truly incorporated and listed as a corporation on their W-9, you’re generally not required to send a 1099.
What if I’m not sure of a company’s tax classification?
Request a new W-9 and confirm the business type. Never guess—you could end up issuing a 1099 incorrectly or failing to issue one when required.
Is there a deadline to send out 1099s?
Yes. 1099-NEC forms must typically be issued to recipients and filed with the IRS by January 31 of the following tax year.
Conclusion
So, does an incorporated company get a 1099?
In most cases, no — corporations are generally exempt from receiving 1099 forms. However, important exceptions exist, particularly in legal and medical industries. Additionally, LLCs require extra attention, as their tax classification determines their 1099 status.
The key to compliance lies in understanding vendor structure, collecting proper documentation (like Form W-9), and issuing 1099s accurately and on time.
If you’re a business owner, proactively managing this process protects your business from IRS penalties and builds stronger relationships with your vendors. If you’re a contractor or service provider, knowing your tax classification helps you understand what to expect during tax season.
By staying informed and organized, businesses and service providers can ensure they’re following IRS guidelines and avoiding costly mistakes.