In most cases, an S corporation does not get a 1099 for payments it receives for services. The IRS exempts corporations, including S corps, from Form 1099-NEC reporting because their income is already captured on Form 1120-S. That general rule has real exceptions, though: legal fees, medical and health care payments, rent, royalties, and a handful of less common categories still require a 1099 even when the recipient is an S corporation. Backup withholding is a separate trigger that can produce a 1099 for any payment regardless of entity type.
Why the General Rule Exempts S Corps
When a business pays a contractor or vendor $600 or more for services in a year, it normally files Form 1099-NEC. Corporations are carved out of that requirement. The IRS already receives detailed income data from S corporations through Form 1120-S, so a separate 1099 for service payments would be duplicative.
The exemption depends on the S corporation identifying itself correctly to the payer. Before payment is made, the S corporation should give the payer a completed Form W-9 with “S corporation” checked on line 3a.1Internal Revenue Service. Form W-9, Request for Taxpayer Identification Number and Certification With that W-9 on file, the payer knows no 1099-NEC is needed for service payments. Without one, the payer has no way to verify the entity type and may issue a 1099 anyway, or start backup withholding.
Payments Where an S Corp Still Receives a 1099
The corporate exemption applies to general service and miscellaneous income. Several specific payment categories override it. If your S corporation receives any of the following, expect a 1099.
Legal Fees and Gross Proceeds to Attorneys
Every payment for legal services is reportable, regardless of how the law firm is organized. A payer that pays an attorney or law firm operating as an S corporation $600 or more for legal services reports the fees in box 1 of Form 1099-NEC. Gross proceeds paid to an attorney, such as settlement funds, go in box 10 of Form 1099-MISC. The IRS instructions state plainly that the corporate exemption does not apply to payments for legal services.2Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC
Medical and Health Care Payments
Payments of $600 or more for medical and health care services must be reported in box 6 of Form 1099-MISC even when the recipient is an S corporation.3Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC Physicians, hospitals, labs, and similar providers organized as S corps still receive these forms.
Rent
Rent payments of $600 or more to an S corporation are reported in box 1 of Form 1099-MISC.4Internal Revenue Service. About Form 1099-MISC, Miscellaneous Information This covers commercial leases, office space, equipment rentals, and any other payment for the use of property the S corporation owns.
Royalties
Royalties have a much lower threshold. If an S corporation receives $10 or more in royalties during the year, the payer reports the amount in box 2 of Form 1099-MISC.3Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC
Other Reportable Categories
A few less common payments round out the list. Substitute payments in lieu of dividends or tax-exempt interest (box 8 of Form 1099-MISC), cash payments for fish purchased for resale (box 11 of Form 1099-MISC), and payments by federal executive agencies for services (box 1 of Form 1099-NEC) are all reportable even when paid to a corporation.2Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC
Backup Withholding Creates Its Own 1099
Even when a payment would otherwise be exempt, backup withholding changes the outcome. A payer must withhold at a flat 24% rate and report the payment on a 1099 if any of the following applies:
- The S corporation didn’t provide a taxpayer identification number, or the number doesn’t match IRS records.
- The IRS notified the payer that the TIN is wrong and directed the payer to begin withholding.
- The S corporation failed to certify on its W-9 that it is not subject to backup withholding.
The 1099 issued under backup withholding shows both the payment amount and the tax withheld.5Internal Revenue Service. Topic No. 307, Backup Withholding That is why an accurate W-9 delivered before the first payment matters. Without it, the S corporation loses 24% of every payment upfront and has to reclaim it on the tax return.
If the IRS sends the payer a CP2100 or CP2100A notice flagging mismatched TINs, the payer must compare the listing to its records, send the appropriate “B” notice to the payee, and begin backup withholding if the issue isn’t resolved.6Internal Revenue Service. Backup Withholding “B” Program
What to Do About an Incorrect 1099
Sometimes a payer who never received a W-9, or who overlooked the corporate box on it, issues a 1099-NEC that shouldn’t have gone to an S corp. Contact the payer and ask for a corrected form. Send a fresh W-9 showing the S corporation classification so the mistake doesn’t repeat.
Whether or not a correction arrives, the income on the 1099 still needs to match what appears on the S corporation’s 1120-S. The IRS runs 1099 data through automated matching, and an unexplained gap can generate a notice. If a corrected form hasn’t arrived by the end of February, the IRS advises calling 800-829-1040 for guidance.7Internal Revenue Service. What to Do When a W-2 or Form 1099 Is Missing or Incorrect Ignoring an incorrect 1099 is the worst option, because the amount still shows up in IRS matching.
1099s Are Not How Owners Get Paid
One point of confusion is worth clearing up. None of the 1099 forms above are how an S corporation’s shareholders report their share of business income. S corporations are pass-through entities, and income flows to owners on Schedule K-1, issued with Form 1120-S.8Internal Revenue Service. Instructions for Schedule K-1 (Form 1120-S) Shareholders who work for the S corp receive a W-2 for their reasonable compensation, subject to payroll taxes.9Internal Revenue Service. S Corporation Employees, Shareholders and Corporate Officers A 1099 to the S corp itself, when one is required at all, is a separate matter from how the entity’s profits and wages reach the people who own and work for it.