Do Corporations Need to Be Issued 1099 Forms for Income Received?

If you want to write off business expenses, in most cases you save receipts. If the expense is rent or a service provided by a non-employee, you also may have to issue a 1099 form. This helps the Internal Revenue Service to keep track of who's getting paid for what, and you could face penalties if you fail to file the form. But in most cases when the recipient is a corporation, the 1099 requirement doesn't apply.

Generally any time you pay someone $600 or more in a year for services in the course of your trade or business, you must issue a 1099 form after the end of the year. The payment can be for contract labor, consultant work or even for a plumber. If the person you paid is not an employee, you have to issue the 1099. One copy goes to the payee and another goes to the Internal Revenue Service. This allows the IRS to verify your expenses and make sure the other guy pays his taxes on the income.

The major exception to the 1099 requirement is payments to corporations. Most payments to incorporated businesses do not require that you issue a 1099 form. This exception also applies to limited liability companies that elect to be treated as corporations. When you make payments to an LLC, find out if it is exempt from the 1099 filing requirement.

There are a few cases in which you do have to issue 1099s to corporations, including payments for legal services, payments for medical or health care services, and cash purchases of fish or other seafood for resale. Also if you pay a law firm money in connection with legal services, as part of a settlement for example, the amount must be reported as gross proceeds on the 1099.

The 1099 most commonly applies to the contractor relationship. Independent contractors file taxes independently and pay a self-employment tax. The 1099 tracks income received from their working partnerships. An employee has filed a W-2 with your company and taxes are managed through your business payroll process. In this case, a 1099 is not necessary.

If you think a company is incorporated but you're not sure, double-check. The IRS can assess penalties of up to $100 for each 1099 not correctly filed, and a $250 fine for intentional disregard of the filing requirements.