Do LLCs Taxed as a Partnership Get a 1099? Avoid this Mistake + FAQs

The answer is YES – under certain conditions, they do. If your LLC hasn’t elected corporate tax status, it’s generally treated as a partnership by the IRS.

That means when another business pays your LLC for services or rent over the $600 reporting threshold, they should issue a Form 1099 to report that payment.

According to a 2022 National Small Business Association survey, over 35% of small businesses file 1099 forms late or incorrectly, risking hundreds in penalties for each missed or incorrect form.

In this comprehensive guide, you will learn:

• Which types of LLCs must receive 1099 forms, and which are exempt

• What kinds of businesses and payments do not trigger a 1099 requirement

• Key IRS rules and state-level differences for issuing 1099s to LLC partnerships

• Common real-world scenarios (with tables) showing when to send a 1099 to an LLC

• How to avoid costly mistakes and get quick answers to frequently asked questions

1099 Forms Explained: Why They Matter for LLCs

A Form 1099 is an IRS information return used to report certain types of income paid to people or businesses not employed by the payer. In other words, companies issue 1099s to report payments made to independent contractors, freelancers, landlords, or other entities for services, rents, royalties, and more. The IRS uses these forms to track income that isn’t reported on a W-2 (which is for employees).

If your LLC receives money in the course of business – for example, payment for consulting work, rent from a tenant, or commission for a referral – the paying party may be required to send your LLC a 1099. The form shows the amount paid and is filed with the IRS as well as given to you. This lets the IRS know how much income you should be reporting on your tax return.

Example: A software company hires a marketing LLC (taxed as a partnership) for a project and pays $2,000 over the year. Because the marketing LLC isn’t a corporation, the software company must issue a Form 1099-NEC to that LLC reporting the $2,000 payment. The LLC will use that 1099 to ensure it reports the income, and the IRS will cross-check the amounts.

Which LLCs Receive 1099s (and Which Don’t)

Not every LLC is treated the same when it comes to 1099s. It all depends on how the LLC is taxed. An LLC can choose to be taxed as a sole proprietorship, partnership, S corporation, or C corporation – and that classification determines whether other businesses need to send them 1099 forms.

Here’s a breakdown of common LLC tax classifications and whether they typically get 1099s:

• Single-Member LLC (Disregarded Entity): Yes. A single-member LLC is taxed like a sole proprietor (a disregarded entity), so it does receive 1099s for applicable payments. Clients who pay a single-member LLC over $600 for services will issue a 1099 (usually Form 1099-NEC).

• Multi-Member LLC (Partnership): Yes. By default, a multi-owner LLC is taxed as a partnership, and a partnership is not a corporation. That means other businesses must send a 1099 form when they pay a multi-member LLC $600 or more for services, rent, or other reportable payments.

• LLC Taxed as an S Corporation: No. If an LLC files an election (Form 2553) to be taxed as an S corp, it’s treated like an S corporation for tax purposes. Payers generally do not issue 1099-NEC for payments to corporations, including LLCs taxed as S corps. (Exceptions: even an S-corp LLC might still get a 1099-MISC for things like rent or a 1099-NEC for legal fees – more on exceptions later.)

• LLC Taxed as a C Corporation: No. Similarly, if an LLC elects to be taxed as a C corporation (via Form 8832), it usually will not receive 1099-NEC forms for services. Corporations are exempt from 1099 reporting in most cases. (As with S corps, corporate LLCs could still receive 1099-MISC for rent, royalties, or an attorney’s 1099 for legal payments.)

Below is a quick comparison of an LLC taxed as a partnership vs. an LLC taxed as an S-corp vs. a sole proprietorship, in terms of 1099 obligations:

IRS Guidelines for 1099 Reporting to LLCs

The IRS has clear rules on who must issue Form 1099s and under what circumstances. In general, any business (payer) must issue a Form 1099 if, in the course of business, it pays $600 or more in a year to a non-corporate entity for certain services or income types. This requirement is rooted in IRS law (Internal Revenue Code § 6041), which mandates reporting of payments to ensure income is reported properly by the recipients.

Key federal guidelines include:

• Threshold: If you pay an unincorporated business (such as an LLC taxed as a partnership or sole prop) $600 or more total during the year for services, rents, or other reportable categories, you must issue a 1099. (For royalties, the threshold is only $10.)

• Included Payment Types: The rule covers nonemployee compensation (independent contractor work), professional service fees, rent paid to a landlord, royalties, certain prizes/awards, and legal services payments. Starting in 2020, the IRS uses Form 1099-NEC specifically for reporting most services (nonemployee compensation), and Form 1099-MISC for rent, royalties, and miscellaneous income.

• Excluded Payment Types: Not all payments require a 1099. The IRS does not require 1099s for goods or merchandise purchases, for telephone, freight, or storage bills, or for payments to employees (wages go on a W-2 instead). Also, personal payments (outside of business) don’t require 1099s. And importantly, payments made to C or S corporations are generally exempt from 1099 reporting (with the notable exception of attorney fees and certain medical/health payments).

• Method of Payment: If you pay via credit card, debit card, PayPal, or a third-party payment platform, you usually do not issue a 1099 for that amount. Those payments are reported by the payment processor on a separate form (Form 1099-K) if thresholds are met. For example, if you paid an LLC with a credit card, you skip the 1099-NEC for that payment.

• Reporting Process: When required, you must send a copy of the 1099 form to the IRS and to the recipient (the LLC). The payer keeps one copy for their records as well. Typically, 1099s for the year must be delivered to recipients by January 31 of the following year, and filed with the IRS by the same date (or by the end of February/March for some 1099-MISC filings if paper or e-filed).

• Verification (Form W-9): To determine if a vendor should get a 1099, businesses should collect a Form W-9 from each payee. The W-9 form provides the vendor’s Tax ID Number (TIN) and tax classification (e.g. individual, C corp, S corp, partnership, etc.). Always use Form W-9 to confirm an LLC’s status – never assume based on the company name alone. For instance, an LLC’s W-9 will tell you if it’s taxed as a corporation or not by what box is checked.

• Multiple Owners / Pass-Through: If an LLC is a partnership, it will file its own partnership tax return (Form 1065) and issue Schedule K-1 to its owners for their share of income. But this does not change the 1099 requirement for payments made to the LLC. The IRS still expects a 1099 to be filed for payments to the partnership, because that’s how the IRS knows the income went into the business. The LLC’s internal structure (as detailed in its operating agreement or tax filings) doesn’t exempt it from 1099s unless it elected corporate status.

State-Level 1099 Reporting Nuances

Federal law governs the issuance of 1099s, but don’t forget about state requirements. Most states follow the IRS rules on who should get a 1099 (for example, they also exempt corporations). However, states may have their own filing requirements and deadlines for the 1099 forms:

• State Filing Requirements: Some states require you to file a copy of the 1099 with the state’s tax authority. For instance, states like Pennsylvania and New Jersey mandate that businesses submit 1099 forms to the state in addition to the IRS, especially if state tax was withheld or the payee is a state resident. Other states participate in the IRS Combined Federal/State Filing Program, which means if you file your 1099s with the IRS electronically, the IRS will forward that information to the state tax agency. (However, Form 1099-NEC often is not included in that program, so many states insist on direct filing of 1099-NEC with them.)

• Different Deadlines: State deadlines for submitting 1099 data can vary. Many states mirror the federal January 31 deadline, but some allow a bit more time. Always check your state’s regulations – missing a state filing deadline can result in state-level penalties, separate from the IRS fines.

• State Exceptions: While uncommon, a few states might have quirks in their 1099 rules. For example, a state could require 1099 reporting for certain types of payments even if federal law doesn’t, or lower the $600 threshold for state purposes. Also, states may require 1099-K forms (for credit card payments) at different thresholds than federal (the IRS threshold for 1099-K is shifting to $600, though implementation was delayed). The key is to verify your state’s 1099 instructions each year so you don’t overlook any local obligations.

• Example: California generally follows federal 1099 rules, but since California is part of the Combined Filing Program except for 1099-NEC, businesses must send 1099-NEC forms directly to the California Franchise Tax Board by the state’s deadline. If you only file with the IRS, California won’t automatically get your 1099-NEC data, which could be an issue if the state audits your filings.

The bottom line: Make sure you meet both federal and state 1099 obligations to avoid any compliance gaps. Comply with IRS requirements first, but also confirm any state-specific 1099 filing needs so you’re covered at both levels of government.

Key Tax Terms (LLC, Partnership, TIN, etc.) You Should Know

To navigate 1099 rules, it helps to understand a few important tax terms and classifications:

• Limited Liability Company (LLC): A flexible business entity structure created under state law. An LLC can have one or multiple owners (“members”). For tax purposes, an LLC is not its own tax category – it adopts a tax classification (disregarded entity, partnership, or corporation). The LLC’s operating agreement (an internal document) outlines ownership and operations, but tax classification is determined by IRS rules and any elections filed.

• Partnership (Tax Classification): When an LLC has two or more members and hasn’t elected corporate status, the IRS treats it as a partnership. The LLC files a Form 1065 partnership tax return, and profits “pass through” to owners via Schedule K-1 forms. A partnership itself doesn’t pay income tax, but it must receive 1099s for its income and then allocate that income to partners.

• Disregarded Entity: This refers to an LLC with a single owner that hasn’t elected to be taxed as a corporation. The IRS “disregards” the LLC as separate from its owner for income tax. Essentially, the business is taxed like a sole proprietorship (if the owner is an individual) – the owner reports business income on Schedule C of their personal return. Disregarded entities use the owner’s taxpayer ID (SSN or EIN) and should receive 1099s just like any sole proprietor would.

• Pass-Through Taxation: A feature of sole proprietorships, partnerships, and S-Corps where the business entity itself doesn’t pay federal income tax. Instead, profits and losses pass through to the owners’ personal tax returns. LLCs taxed as partnerships or S-corps are pass-through entities. (C corporations, by contrast, pay their own corporate tax.) Note: Pass-through status does not exempt an entity from 1099 reporting requirements – that depends on whether it’s classified as a corporation or not.

• Taxpayer Identification Number (TIN): The identification number used by the IRS for tax purposes. For individuals, this is typically a Social Security Number (SSN). Businesses, including LLCs, usually have an Employer Identification Number (EIN), which is also known as a Federal EIN (FEIN). On Form W-9, an LLC will provide its TIN (often an EIN) to the payer. The TIN is what gets reported on the 1099 so the IRS can match the income to the right taxpayer.

• Form 1099-NEC: The IRS form specifically for reporting Nonemployee Compensation – basically payments for services performed by someone who is not your employee (independent contractors, freelancers, and unincorporated vendors). Created in 2020, Form 1099-NEC replaced the use of Box 7 on the old 1099-MISC. Now, if you pay an LLC (or any business) for services, and a 1099 is required, it will typically be on a 1099-NEC.

• Form 1099-MISC: A catch-all IRS form for miscellaneous payments that don’t go on 1099-NEC. Common uses include reporting rent, royalties, prizes/awards, medical and health care payments, and gross proceeds to attorneys. An LLC might receive a 1099-MISC if, for example, it earned rental income from a commercial tenant or royalty income from a licensing deal. (Prior to 2020, 1099-MISC was also used for contractor payments, but now those go on the 1099-NEC.)

• TIN Matching/Backup Withholding: After you issue a 1099, the IRS will attempt to match the payee’s TIN with their records. If the name/TIN on the 1099 doesn’t match IRS records (for instance, because the LLC’s legal name or EIN was recorded incorrectly), you might get a notice. If a payee refuses to provide a TIN on a W-9, you are required to withhold 24% of the payments (called backup withholding) and remit that to the IRS. This ensures taxes get paid if reporting is not properly done. It’s another reason collecting the correct TIN upfront via Form W-9 is critical.

Common 1099 Scenarios Involving LLCs Taxed as Partnerships

Let’s put these rules into practice with some typical scenarios. Below are common situations where a business might wonder whether to issue a 1099 to an LLC taxed as a partnership. We’ll outline if a 1099 is required in each case:

How Businesses Misclassify or Miss 1099 Filings

Despite clear rules, mistakes happen frequently in the real world. Here are a few examples of how businesses can get it wrong with LLCs and 1099s:

Example 1 – Assuming “LLC” Means No 1099: Smith Consulting LLC is a graphic design firm with two members (taxed as a partnership). A client hires Smith Consulting and pays them $5,000 for a project. The client sees “LLC” in the name and mistakenly believes all LLCs are corporations, so they do not send a 1099. Come tax time, Smith Consulting reports the income on their partnership return, but the IRS has no 1099 on file to match that $5,000. This could raise a red flag. In an audit, the client could face penalties for failing to issue a required 1099. This misclassification happened because the client assumed an LLC didn’t need a 1099, when in fact an LLC taxed as a partnership does.

Example 2 – Missing the Deadline: A small business owner realizes on February 15 that she was supposed to send out a 1099-NEC to her contractor (an LLC partnership) by January 31. She rushes to file it late. Because it’s more than two weeks past the deadline, the IRS can impose a late filing penalty (for example, $50 or $110 per form, depending on how late). If she had missed it entirely, the penalty could grow to around $290 per form. Late filing also means the contractor may have already filed their taxes without the 1099, causing confusion and possible amendments.

Example 3 – Overreporting (Issuing Unneeded 1099s): Not all mistakes involve missing a form; sometimes businesses send too many. For instance, XYZ Corp hires an IT support company that is an LLC taxed as an S-corp. XYZ’s bookkeeper, not aware of the S-corp status, issues a 1099-NEC to the IT company for $800. While this doesn’t incur a penalty (there’s no penalty for sending a 1099 that isn’t required), it can create confusion. The S-corp LLC might call up wondering why they got a 1099 (since their other clients correctly didn’t send one). It’s not the worst error, but it shows a lack of understanding of the payee’s status. Using the W-9 form could have prevented the mix-up by clearly indicating the LLC’s S-corp tax classification.

In all these scenarios, a bit more diligence (checking the W-9, tracking deadlines, understanding tax status) would have saved the day. Next, we’ll look at what the IRS does when these mistakes happen.

IRS Enforcement: Penalties and Important Considerations

The IRS doesn’t take information reporting lightly. If you fail to issue a required 1099 or file it with the IRS, you can face significant penalties under IRC Sections 6721 and 6722. The penalty amounts depend on how late the form is and can add up quickly:

• Filing a 1099 just a bit late (within 30 days of the due date) can incur a $50 penalty per form.

• Filing more than 30 days late but before August 1: about $110 per form.

• Filing after August 1 or not at all: roughly $290 per missing form (for small businesses) as of recent penalty schedules.

• If the IRS finds you intentionally disregarded the requirement (willfully not filing), the penalty jumps to $580 or more per form, and there’s no maximum cap – meaning a business that willfully ignores 1099 rules can be fined heavily.

These fines double up: one set of penalties for not filing with the IRS, and another for not providing the payee their copy. So a missing 1099 can effectively cost you twice.

Beyond fines, missing 1099s can raise audit flags. On business tax returns (forms like Schedule C, Form 1120, etc.), the IRS now directly asks if you made payments that require 1099s and if you filed them. Answering “No” (or leaving it blank) is a red flag. In audits, IRS agents frequently check for compliance with 1099 filing. There have been tax court cases where the IRS has attempted to disallow business expense deductions for payments that should have had a 1099 issued. The logic is, if a business wants to claim a deduction for paying a contractor, they need to have fulfilled their reporting obligation on that payment. While disallowing the expense isn’t automatic, it’s a risk if you blatantly ignore 1099 rules.

The IRS has also updated its forms and systems to improve compliance. The introduction of Form 1099-NEC in 2020 was specifically to make it easier to track nonemployee compensation separate from other income. There’s been a push to catch non-compliance in the growing gig economy, evidenced by attempts to lower the Form 1099-K threshold for payment apps to $600 (though implementation was delayed to ensure a smooth rollout).

Bottom line: The IRS is watching 1099 reporting closely. If you mistakenly send a 1099 when you didn’t need to, you won’t be penalized. But if you fail to send one when required, you could face fines and added scrutiny. It’s far better to err on the side of caution and stay compliant.

Pros and Cons of Issuing 1099s to LLCs

You might wonder, aside from it being the law, are there advantages or disadvantages to issuing 1099s to your vendors (including LLCs taxed as partnerships)? From a compliance standpoint, you should always issue required 1099s. But here are some pros and cons to consider:

Avoid These Common 1099 Filing Mistakes

Even with the rules in hand, certain pitfalls catch businesses off guard. Here are some common mistakes to watch out for (and avoid):

• Failing to collect Form W-9 upfront: Don’t wait until year-end to get vendor information. Always have new vendors (LLCs, contractors, etc.) fill out a W-9 form before payment. This ensures you know their tax classification and have their correct name and TIN. Without a W-9, you might guess wrong about needing a 1099 or have no EIN on record when it’s time to file.

• Assuming “LLC” means corporation: As we’ve emphasized, LLC status alone does not equal corporation. Many LLCs are taxed as partnerships or sole proprietorships and do need 1099s. Always go by the tax classification on the W-9, not just the business name or structure.

• Missing the deadline: Mark January 31 on your calendar. That’s the due date to send 1099s to recipients (and for filing 1099-NEC with the IRS). It comes quickly after year-end, so prepare early. Missing the deadline, even by a few days, can result in penalties. Use IRS Form 8809 to request an extension before the deadline if you know you’ll need more time.

• Using the wrong form (1099-NEC vs 1099-MISC): Make sure you differentiate payment types. Use 1099-NEC for services (nonemployee compensation) and 1099-MISC for other payments like rent, royalties, or attorney fees. Using the wrong form or box can cause IRS processing errors or notices.

• Not issuing due to payment method confusion: Remember that payments via credit card/PayPal are handled by 1099-K, but if you paid part of an invoice by check and part by card, you do need to 1099 the portion you paid by check (if total to that vendor is $600+ by non-card methods). Some businesses wrongly skip 1099s entirely because they paid some invoices by card – but if any payments were by cash, check, ACH, etc., those count toward the $600 threshold for 1099-NEC/MISC.

• Forgetting special cases: A classic mistake is forgetting that attorney payments always require a 1099 (even if the law firm is an LLC taxed as a corporation). Similarly, if you paid for professional medical services from an LLC clinic, those might require a 1099-MISC. Keep an eye on those specific IRS exceptions so you don’t overlook them.

• Not updating vendor info: If a long-time vendor tells you they changed their tax status (e.g. an LLC that was a sole prop last year but elected S-corp status this year), update your records and get a new W-9. The 1099 requirement can change year to year for the same vendor if their classification changes. It’s a mistake to assume last year’s status still holds.

• Ignoring error notices: If you do file 1099s and later receive an IRS notice (like a CP2100 “B Notice”) about a bad TIN or name mismatch, don’t ignore it. Respond as directed (usually by sending a W-9 request to the vendor again) to avoid potential penalties for filing incorrect info. Fixing mistakes early shows good faith and can prevent fines.

By steering clear of these missteps, you’ll make 1099 filing season much smoother and keep your business in the IRS’s good graces.

FAQs: LLCs and 1099s in Practice

Below are quick answers to some frequently asked questions small business owners have about LLCs and 1099 forms:

• Does an LLC taxed as a partnership get a 1099? Yes. If an LLC hasn’t elected corporate status, it must receive a 1099 for qualifying payments (e.g. $600+ for services) because it’s not a corporation.

• Do I need to send a 1099 to a single-member LLC? Yes. A single-member LLC (disregarded entity) is treated like a sole proprietor, so if you paid $600 or more for services, you should issue a 1099-NEC.

• My LLC is taxed as an S-Corp. Will clients send me 1099s? No. Generally clients won’t issue 1099-NECs to S-corporation LLCs for services, since those are exempt. (But if you earn rent or legal payments, you might still get a 1099-MISC.)

• If I pay an LLC by credit card, do I still issue a 1099? No. Payments made via credit card or third-party processors are reported on 1099-K by the processor. You do not issue a 1099-NEC for those amounts.

• Do I have to report income even if I never got a 1099? Yes. All business income must be reported, 1099 or not. An LLC should report every dollar it earned, whether or not a client sent a 1099 form.

• Is there a penalty if I issue a 1099 that wasn’t needed? No. There’s no penalty for sending a 1099 to a payee that didn’t actually require one. The IRS would simply have extra information – they penalize only for missing required forms.

• Do I issue a 1099 for goods purchased from an LLC? No. You don’t send 1099s for products or merchandise. Only services and certain types of payments (rent, etc.) are reportable. Paying an LLC for tangible goods doesn’t trigger a 1099 requirement.

• My contractor refuses to provide a TIN. Can I still pay them? Yes, but you must withhold 24% of the payment (backup withholding) for the IRS. Without a W-9 from them, treat them as subject to withholding by default.

• Can an LLC receive both a 1099-NEC and 1099-MISC in the same year? Yes. If the LLC had different types of income, it could get both – e.g. a 1099-NEC for service income from one client and a 1099-MISC for rent or royalties from another.

• Can I issue a 1099 after the IRS deadline? Yes, you can and should if you missed it, but it may come with a late penalty. It’s better to file late than not at all.

• Do I need to send a 1099 to my LLC’s owner for distributions or draws? No. Owners of an LLC don’t get 1099s for their own profit draws. Owner distributions are not “payments for services” – they’re handled through the LLC’s K-1s or personal draws.

• How can I tell if an LLC is taxed as a corporation or not? Check their W-9. The W-9 form will indicate if the LLC is a C or S corporation. If it’s neither (or that section is blank), treat it as a partnership/sole prop and issue a 1099 if criteria are met.