S corps generally don't receive 1099s because they are treated as corporations by the IRS, which exempts corporations from the nonemployee compensation reporting (Form 1099-NEC) required for sole proprietors and partnerships, as the S corp files its own return (Form 1120-S) and income passes through to shareholders via Schedule K-1. This exemption applies to most services, but exceptions exist, particularly for payments to attorneys and healthcare providers.
While S corporations are typically exempt from receiving 1099 Forms, there are a few exceptions that these businesses must still remain mindful of. S corporations should expect to receive and thus file a 1099 Form in the following common scenarios: Legal fees to attorneys, even if the attorney is incorporated.
the theory is that independent contractors and smaller businesses are more likely to under report income so the IRS holds everyone accountable with the 1099 requirement. Corporations are held to stricter standards.
If a service provider is incorporated as a C-Corp or S-Corp, you are not required to issue a Form 1099-NEC.
Shareholders must include their share of the income on their tax return whether or not it is distributed to them. Unlike most partnership income, S corporation income isn't self-employment income and isn't subject to self-employment tax.
Whether you have a large or small business, you must send forms to all payees with the exception of corporations and any payee earning under 600 for the year. In other words, all the self-employed independent contractors you paid over $600 in rents, services, awards, or other payments need you to send them a tax form.
If a business fails to issue a form by the 1099-NEC or 1099-MISC deadline, the penalty varies from $60 to $330 per form for 2025, depending on how long past the deadline the business issues the form.
Will the IRS catch a missing 1099? The IRS knows about any income that gets reported on a 1099, even if you forgot to include it on your tax return. This is because a business that sends you a Form 1099 also reports the information to the IRS.
Not filing Form 1099 incurs tiered penalties from the IRS, ranging from $60 to $340 per form for 2025 filings, depending on how late you file (within 30 days, after 30 days but by August 1, or after August 1/never filed). Intentional disregard significantly increases the penalty to a minimum of $680 per form with no maximum cap, and these penalties also apply for failing to provide recipient copies or filing incorrect information.
According to the IRS's general rules, an S corporation does not receive a 1099 Form; the same goes for a C corporation. S corporations are exempt from receiving Form 1099 because they are pass-through entities; their income is reported directly on the owners' tax returns rather than at the corporate level.
For taxpayers who did not receive a Form 1099-S, use sale documents and other records. If the taxpayer can exclude the entire gain from a sale, the person responsible for closing the sale (for example, a real estate broker or settlement agent) generally will not have to report it on Form 1099-S.
S-Corps must issue 1099s for payments like contractor services over $600. Form 1099-NEC is due to the IRS by January 31. Penalties for missing filings range from $60 to $340 per form. Medical payments to S-Corps require reporting on Form 1099-MISC, Box 6.
The "2% rule" for S Corporations treats shareholders owning more than 2% of the company's stock (or voting power) differently for fringe benefits, classifying them like partners in a partnership, not regular employees; this means benefits like health insurance premiums paid by the S Corp must be included as taxable wages on their W-2, rather than being tax-free, though the shareholder can often deduct these premiums as an "above-the-line" deduction. This rule prevents them from participating in tax-advantaged Section 125 cafeteria plans, making benefits like Health FSAs unavailable on a pre-tax basis.
How do S corp owners pay themselves? Those who are both an employee and a shareholder in an S corporation generally pay themselves via distributions and a salary. The latter is necessary if the individual performs more than minor services for the business.
Organizing a business as an S-corporation can help you avoid higher self-employment taxes by classifying some income as salary and some as a distribution. That way, you will only owe self-employment taxes on the salary portion.
Exemptions from Form 1099-S (for real estate transactions) generally apply to sales of principal residences (under certain gain/price limits), transfers to corporations or government entities, non-sales like gifts, foreclosures, transactions under $600, and certain natural resource or burial plot sales, with the seller often needing to certify their exemption status. Exemptions are mainly for the reporting requirement, not necessarily for the underlying tax on gain, though qualifying principal residence sales can exclude gain from income.
Some key features of S corporations are: They do not pay federal income taxes. They're limited by the types of owners (shareholders) and cannot exceed 100 shareholders. A separate bank account and separate records are required with this form of business.
A 1099 significantly affects taxes because you're considered self-employed, meaning you pay both income tax and the full self-employment tax (15.3% for Social Security & Medicare), as there's no employer to split it with. This usually means setting aside 25-35% of your income, and you'll likely need to make quarterly estimated tax payments to avoid penalties, though business expense deductions can lower your taxable amount.