A Limited Liability Company (LLC) is a business structure in the U.S. that offers the tax advantages of a partnership while protecting the liability of owners towards paying business debts. LLCs are also similar to corporations, except that they offer something called a pass-through taxation to their members to avoid double taxation. In this option, the income is directly passed to the owners/members of the LLC and is taxed as their personal income. As a result, the LLC does not pay corporate tax, and the profits are subject to each individual’s personal tax, which tends to be lower.
Due to this tax advantage, many business owners prefer this business structure. Also, the limited liability option is another attractive feature that limits the owners’ liability.
The regulation of LLCs varies greatly across states. In this guide, we will discuss in detail the forms that an LLC must submit to the IRS to take advantage of the pass-through option.
What Is Form 1099-NEC?
The LLC must file Form 1099-NEC to account for the compensation paid to all non-employees, including freelancers and independent contractors.
Why It Exists?
This form is proof that an individual has earned a certain income from your company. Since that individual is not an employee, you have not withheld payroll taxes, and this form tells the IRS that an individual has received compensation from you. For this form, compensation includes fees, benefits, commissions, prizes, and awards for any service rendered to your organization.
This form was reintroduced by the IRS in 2020 to identify non-employee compensation from other income that is reported on 1099-MISC. This separation made it easier for the IRS to track payments made to non-employees.
Who Must File It?
Form 1099-NEC must be filed by,
- Businesses that have paid a non-employee compensation of $600 or more, and have not withheld taxes.
- Businesses that have withheld federal taxes, even if the compensation was less than $600 during the year.
This form must be filed with the IRS by January 31 of the year following the financial year. Also, a copy of this form must be sent to the concerned individual. Late filing can attract interest ranging from $60 to $630 per form.
Key 2025 Updates from the IRS
The IRS has made the following updates to 1099-NEC in 2025. They are:
- Businesses that file 10 or more forms can only e-file them. Even if there are fewer than 10 forms, the IRS recommends e-filing,
- If businesses have fewer than 10 forms, they must send a request to the IRS to get a scannable Copy A for filing. Printing the online form can attract penalties from the IRS.
- The IRS recommends that businesses use the TIN Matching System to avoid errors in TINs and names.
Do LLCs Receive Form 1099?
Whether LLCs should receive Form 1099 depends on how it is classified from a taxation standpoint.
From a tax perspective, LLCs can be classified as a sole proprietorship, partnership, S-Corp, or C-Corp. The IRS will tax an LLC based on its tax structure, and not on its legal structure. For example, the LLC can be a partnership that has elected to S-Corp. In such a case, the entity will be treated as an S-Corp and not a partnership.
As a business owner, if you’re making a payment to an LLC, make sure to check its tax structure. You can find this information in the W-9 form submitted by the LLC.
Let’s now see if the following entities should receive Form 1099.
Single Member LLCs (Disregarded Entities)
An entity with only a single member is automatically treated as a disregarded entity by the IRS, unless the single member elects to become an S-Corp. When treated as a disregarded entity, there is no separation between the owner and the entity, and the owner is responsible for paying taxes on the profits earned through the entity. In such situations, the LLC must receive Form 1099.
Multi-Member LLCs (Partnerships)
LLCs with two or more members are taxed as partnerships. These LLCs must get Form 1099 if they have received $600 or more as income from you for the services they provided. Like a sole proprietorship, you must file Form 1099 with the IRS and send a copy to the partnership company.
LLCs Taxed as S-Corporations or C-Corporations
Finally, what happens if the LLC is taxed as an S-Corp or a C-Corp?
You don’t have to file a Form 1099 for these entities, as the IRS does not require this information for their corporate filings.
There are some exceptions to this rule. You must file Form 1099, even if the LLC is an entity, in the following cases.
- You have made a payment in return for legal services rendered by the LLC.
- You’re paying the rent, medical, or healthcare services for the LLC.
- The IRS has explicitly stated that your type of payment must be reported.
When Are You Required to Send a 1099 to an LLC?
Now that you know which entities must receive a Form 1099, let’s examine the scenarios under which you are required to send one to an LLC.
The $600 Threshold Rule
The IRS requires you to send a Form 1099 to an LLC if you have made a payment of $600 or more during a given calendar year. As mentioned before, you don’t have to file Form 1099 if the LLC is a corporation.
As for payments under $600, it is voluntary, though many businesses prefer to do it as a good accounting practice. Similarly, you don’t have to file a 1099 if payments made to an LLC are not related to your business.
Services vs. Goods
You must file Form 1099-NEC only for services, which can include IT support, graphic design, accounting, consulting, and more. This form is not required for goods.
On the other hand, if you have made a direct sale of goods to an LLC with a purpose for resale and if the total value exceeds $5,000 during a calendar year, you must file Form 1099-MISC.
If you are making a payment for both goods and services, you must report the entire amount to the IRS if the goods are required to provide the service. For example, if you paid an auto repair LLC for repairing a car used for business, you must report the costs of the service as well as the parts that were replaced because the service is incidental to the auto parts.
U.S.-Based Vendors vs. Foreign Vendors
1099 rules apply only to U.S. vendors. If you’re unsure if a vendor is U.S.-based or foreign, look for the registered address of the LLC in the W-9 form. If the address is within the U.S., file Form 1099, subject to other conditions.
For foreign vendors, you must collect W-8BEN for individuals and W-8BEN-E for entities. These forms will have the tax information of the foreign entities.
Professional Services (Lawyers, Accountants, Contractors)
Some types of payments must be reported to the IRS, regardless of whether an LLC met the $600 threshold or not, and even if the entity is a corporation. These payments are:
- Legal fees paid to attorneys.
- Fees paid for medical or healthcare services.
Exceptions to the 1099 Requirement
There are some situations where you don’t have to file Form 1099, even if the payments exceed $600. These exceptions depend largely on the nature of the recipient and how the payment was made.
Corporations Generally Exempt (But Not Always)
Businesses that are taxed as S-Corps or C-Corps are exempt from the 1099 requirement. However, this exemption is not available when payments are made for legal services, medical and healthcare services, fish purchases for resale, or services involving federal executive agencies.
Payments Made via Credit Card or Third-Party Apps (Form 1099-K)
When you make a payment through a credit card or third-party apps like PayPal, you don’t have to issue a 1099-NEC. This reporting is automatically taken care of by the financial service providers and payment processors, who file Form 1099-K.
This difference is because the IRS states that when you use a third-party entity for processing payment, it’s the responsibility of that entity to report it. For example, if you pay a freelancer $900 through PayPal, you don’t have to file Form 1099. On the other hand, if you pay $900 via bank transfer, you must file Form 1099.
Rents, Royalties, Legal Fees—Special Cases
Besides the above-mentioned cases, there are also some special situations that require Form 1099-MISC and not Form 1099-NEC. These situations are:
- Rents paid to individuals, partnerships, and LLCs that are not corporations.
- Any amount over $10 paid as royalty to a non-corporation entity.
- Legal fees paid to any entity, including corporations.
If you’re unsure if an entity must receive Form 1099, you may check their W-9 form or contact Manay CPA.
1099 Reporting by LLC Type: A Breakdown
The 1099 reporting depends on the tax structure of the LLC. Here’s a quick breakdown of the reporting requirements for each type of LLC.
Single-Member LLCs
Single-member LLCs are treated as sole proprietorships by the IRS, which means the profits are included in the personal income tax of the member. These SMLLCs must get Form 1099, provided the income exceeds $600. If the fees are for legal or medical services, Form 1099 must be filed even if the income is below $600.
While filing Form 1099, make sure it is filed under the owner’s name with the Social Security Number (SSN) or TIN as provided in Form W-9.
The only exception is when the SMLLC has elected to be an S-Corp.
Multi-Member LLCs
By default, multi-member LLCs are treated as partnerships, and they must receive Form 1099. They are subject to the same rules as SMLLCs. The only exception is when the multi-member LLC has elected to become an S-Corp.
S-Corp Election
When a sole proprietorship, partnership, or LLC has elected to become an S-Corp, you don’t have to file Form 1099. This is because S-Corp offers pass-through taxation, which is a provision where the entity’s profits are directly passed to the owners and included in their personal income. This way, the S-Corp does not pay a corporate tax.
However, you will still have to file Form 1099 if the payments are made for legal or medical services.
C-Corp Election
The rules for C-Corp are similar to those of S-Corp. Form 1099 is not required unless it is for legal or medical services.
Foreign-Owned LLCs and 1099 Relevance
Form 1099 is applicable for U.S.-based entities only. For foreign-owned LLCs, you will have to collect Form W-8BEN for individuals and W-8BEN-E for entities. Based on the information in those forms, you must file Form 1042-S.
Overall, the tax structure of an entity determines if you must file Form 1099 for payments made to it.
How to Know an LLC’s Tax Status
As we have seen above, you must know the tax status of an LLC before you can decide if it requires Form 1099 for payments received from you. One good way to know how it is taxed is by examining the details in its W-9 form.
Why You Should Always Request a W-9
It is always a good practice to request a W-9 form from all entities that you work with. This form contains the tax details of individuals, partnerships, and LLCs, like name, SSN or EIN, legal status in the U.S., and the registered address. Using the details provided in this form, you can decide if an entity requires the filing of Form 1099.
Additionally, having a W-9 form is helpful in the following ways.
- Offers protection in the case of an IRS audit.
- Reduces errors in Form 1099.
- Helps you decide the right forms to file.
How Tax Classification Is Indicated
If you look through the W-9 form, you can understand the tax classification of an entity. Specifically, look in Part 1, Line 3, where the entity has to mention its federal tax classification. The types you will see are:
- Individual/sole proprietor/single-member LLC.
- C Corporation
- S Corporation
- Partnership
- Trust/estate
- LLC
- “D” for disregarded entity.
- “P” for partnership
- “S” for S-Corp
- “C” for C-Corp
When the federal tax classification mentions LLC, look at the further classification to understand if an entity requires filing Form 1099.
Box 3: Individual/Sole Proprietor vs. LLC vs. Corporation
The requirements of filing a Form 1099 depend largely on the business structure followed. Below is a table that breaks down the data filed in Box 3:
| Box 3 Checked Value | Entity Type | Require 1099? |
| Individual/sole proprietor | Disregard SMLLC or an individual. | Yes, if payment is more than $600 or if services are for legal and medical purposes. |
| LLC with “P” | LLC taxed as a partnership. | Yes |
| LLC with “C” | Elected to be taxed as C-Corp | No (except legal and medical fees) |
| LLC with “S” | Elected to be taxed as S-Corp | No (except legal and medical fees) |
| C Corporation | C-Corp entity | No (except legal and medical fees) |
| S Corporation | S-Corp entity | No (except legal and medical fees) |
If this box 3 is not filled, you need to reach out to the vendor right away, as this can lead to IRS penalties for you.
How to Correctly Issue a 1099 to an LLC
Once you’ve obtained all the required information through the W-9 form, you can assess the tax status of the entity. Accordingly, you can fill out Form 1099 and file it with the IRS before January 31. Also, make sure to send a copy to the payee.
Collecting Accurate W-9 Information
While collecting Form W-9 from different entities, check the following information.
- Use the TIN Matching Access feature to verify if the name and TIN match.
- See if the tax classification box is filled.
- Look for the sign and date on the form.
If you are using accounting software, retain the W-9 form for a minimum period of four years.
Since this data goes directly into the IRS system, any mismatch in TIN can trigger penalties.
Using Form 1099-NEC vs. 1099-MISC
Before filing, you must know which is the right Form 1099 for an entity and payment. The two common 1099 forms you’ll file are Form 1099-NEC and Form 1099-MISC.
Form 1099-NEC is used for reporting any income paid to contractors, freelancers, and service providers. Most vendor payments are reported in this form. Payments made to attorneys must be reported on 1099-NEC.
Form 1099-MISC, on the other hand, is used for reporting rents, royalties, prizes, awards, and legal settlements. Note that any medical and healthcare payments totaling more than $600 in a calendar year must be reported on Form 1099-MISC, even if the provider is a corporation
Filing Deadlines and E-Filing Tips
The filing deadline for 1099-NEC is January 31st. For 1099-MISC, the filing deadline is February 28th if filing through paper and March 31st if filing online.
Here are a few e-filing tips that can be useful:
- Use the IRS FIRE system for e-filing. Otherwise, opt for IRS-authorized e-file platforms like Intuit QuickBooks.
- If you’re filing many 1099s, use batch upload via CSV.
- Set up automatic email delivery to vendors. Some providers even allow you to track when recipients open or download their 1099 form.
- File early to avoid penalties.
Penalties for Late or Incorrect 1099s
The IRS levies penalties for late or incorrect 1099s. If filed within 30 days from the due date, the penalty is $60 per form. This amount increases to $130 when filed after 30 days but before August 1st, and $330 when filed after August 1st or not filed at all. If the IRS detects that filing 1099 was intentionally disregarded, it can levy a penalty of $660 per form.
Common Scenarios
Next, let’s look at some common scenarios and how to file Form 1099 in such cases.
Hiring a Single-Member LLC Web Designer
You must file Form 1099-NEC when you hire a Single-Member LLC web designer, provided,
- The LLC has not elected to become an S-Corp.
- The amount paid is more than $600.
Paying a Multi-Member LLC for Consulting
In this case, you must file Form 1099-NEC provided:
- The Multi-Member LLC has not elected to be an S-Corp.
- The amount is more than $600.
Paying a Lawyer Who Is an LLC (Still Reportable)
You must file Form 1099-NEC, regardless of the amount you paid and the tax status of the LLC.
Working with Stripe/PayPal Vendors
You do not have to file Form 1099, as Stripe/PayPal will file 1099-K to the IRS.
Do You Report Foreign LLCs on 1099 Forms?
The IRS rules are clear regarding reporting money paid to foreign LLCs. Form 1099 is available only for U.S.-based vendors, so your foreign vendors don’t need to receive Form 1099. However, there are other obligations.
IRS 1099 Requirements for Non-U.S. Vendors
If an LLC is not registered in the U.S. or if the individual does not have a legal resident status in the U.S., no Form 1099 is required. The same rule applies when none of the vendor’s work was performed in the U.S. However, if the vendor has any kind of U.S. tax nexus, you will have to report the payment.
When to Use Form W-8BEN Instead
Before making a payment, collect W-8BEN from foreign individuals and W-8BEN-E from LLCs or corporations. Based on the information available on this form, you can determine the vendor’s location and tax status.
Withholding Tax Rules and Form 1042-S
If the vendor doesn’t submit Form W-8BEN or W-8BEN-E, you must withhold 30% of the payment for U.S. income tax. Also, you must report the payment using the Form 1042-S. Failure to withhold taxes or submit a 1042-S can attract penalties.
How Manay CPA Helps You Stay 1099-Compliant
Handling 1099 forms can be confusing, especially when you deal with a combination of vendors. This is where a professional firm like Manay CPA can help you file the correct 1099s and avoid cost penalties.
1099 Filing Services (Single or Bulk)
Whether you need to send one or hundreds of 1099s, Manay CPA can:
- Prepare and file 1099-NEC and 1099-MISC.
- E-file the forms with the IRS and send a copy to the vendors.
- Verify if the information on W-9 forms matches the IRS database.
- Identify errors and missing information before filing.
Multi-State LLC Compliance & Nexus Tracking
If your business operates across multiple states, tracking the nexus can be time-consuming and sometimes, even error-prone. Manay CPA’s experts understand each state’s 1099 rules and can track whether a nexus exists for your LLC vendor. They help you comply with both state and federal tax laws.
IRS Representation & Audit Defense
If the IRS has selected your business for an audit, Manay CPA can help in the following ways:
- Directly communicate with the IRS.
- Review existing forms and documentation.
- Do the preparations for the audit.
Book Free Consultation
In all, experts at Manay CPA can help you with any questions or issues related to Form 1099. With their experience and expertise in tax filings, they can guide you through this process. Get in touch with Manay CPA and stay ahead of your filing obligations.
