You hired an agency last year, paid it $22,000 for a website build, and now you are staring at its W-9 wondering whether you owe a 1099. The form shows the business is a C corporation, a friend told you corporations are exempt, and your bookkeeper is not so sure. The C-Corp rule is one of the most misread parts of 1099 reporting, and the exceptions are exactly where small business owners slip up. Here is precisely when C corps get a 1099 and when they do not.
To put this together, we spent several hours reviewing the IRS Instructions for Forms 1099-NEC and 1099-MISC, the official corporate exemption rules, and 2024 to 2026 guidance from accountants who specialize in 1099 compliance for small businesses. We focused on the documented exceptions rather than the “corporations are exempt” headline because that shorthand quietly omits the payments that still require a form.
In this article, we will walk you through the general C corp exemption, the specific payments that still require a 1099, how to confirm a vendor’s tax status, and the penalties for getting it wrong.
The Short Answer: Do C Corps Get a 1099?
In most cases, no. Payments to a vendor that operates as a C corporation are generally exempt from reporting on Forms 1099-NEC and 1099-MISC. As a result, if you paid a C corp $22,000 for development work last year, you typically do not issue a 1099 at all. The IRS treats C corporations as separate taxpayers that file their own corporate return and report their own income, which is why the 1099 matching system skips them for most payment types.
However, the exemption is not a blanket pass. Several categories of payments still require a 1099 even when the recipient is a C corporation, and these exceptions are where owners most often go wrong. The safest approach is to collect a W-9 from every vendor before the first payment, then check the form’s classification box and the payment type against the IRS exceptions list before you decide.
When C Corps Still Get a 1099
Even with the corporate exemption, the IRS requires a 1099 for a handful of specific types of payments. Learning this list before tax season keeps you out of penalty territory.
Legal Fees of $600 or More
Payments to attorneys for legal services, including law firms organized as C corporations, must be reported on Form 1099-NEC in Box 1 if the total for the year is $600 or more. As a result, a consultant who paid $5,000 to an incorporated law firm still owes the firm. In addition, gross proceeds paid to an attorney, such as a settlement routed through a trust account, go on Form 1099-MISC in Box 10 with no minimum threshold. Therefore, attorney payments are the single most common C-Corp exception that owners miss.
Medical and Health Care Payments
Payments of $600 or more for medical or health care services require a 1099-MISC in Box 6, even when the provider is a corporation. This rule reaches clinics, labs, and certain providers organized as C corporations. Most freelancers never touch it, but a small business that pays a vendor for occupational health services or employee medical exams needs to issue the form.
Substitute Payments and Other Niche Categories
A few narrower categories also override the exemption. For instance, substitute payments in lieu of dividends or tax-exempt interest of $10 or more should be reported on a 1099-MISC. Likewise, certain cash purchases of fish and attorney gross proceeds remain reportable. These rules rarely affect creative or consulting work, yet they appear regularly in finance and specialized trades.
How to Confirm a Vendor Is a C Corp
The reliable way to confirm a vendor’s structure is to ask for a W-9 before you pay. Line 3 of the W-9 includes a box for “C Corporation,” and the vendor checks it themselves. As a result, the W-9 becomes your written proof of why you did or did not issue a 1099, which protects you if the IRS ever asks. For a full comparison of how each business type is treated, our guide to who gets a 1099 lays out the rules entity by entity.
Be careful with names and LLCs. A vendor named “Acme Inc.” might be a C corp, an S corp, or something else entirely, and only the W-9 tells you for sure. Furthermore, an LLC can elect to be taxed as a C corporation, thereby qualifying it for the exemption, whereas a different LLC taxed as a partnership does not. Our breakdown of whether LLCs get a 1099 explains why the name on the invoice is never enough.
Penalties for Missing or Incorrect Filings
The IRS updates 1099 penalties each year. For 2026 filings, the charge runs from $60 per form if you file within 30 days of the deadline, up to $330 per form if you file after August 1, or skip it entirely. In addition, intentional disregard carries a minimum penalty of $660 per form with no cap. For a business that should have issued a 1099 to a law firm structured as a C corp, the penalty can easily exceed the legal bill that triggered it.
State penalties add another layer in several states. As a result, the total cost of one missed filing can climb well past the federal amount, depending on where you and the vendor operate. A clean vendor list and a few W-9 requests are far cheaper than the cleanup.
A Quick Decision Framework
Before you skip a 1099 for a C corp, run four checks. First, did you pay $600 or more during the year? Second, was the payment for your trade or business? Third, does the vendor’s W-9 confirm C corporation status? Fourth, does the payment fall into an exception, such as legal or medical services? When the first two answers are yes, and the payment encounters an exception, you owe the form regardless of corporate status, and the January 31 deadline still applies.
Common Mistakes to Avoid
The most expensive mistake is treating “incorporated” as “exempt” without checking the W-9. Many vendors use corporate-sounding names while filing as sole proprietors or partnerships, which means they do get a 1099. Another frequent miss is forgetting the legal-fee exception, which catches owners who confidently skip every corporate payment. In addition, some owners assume a credit card or PayPal payment needs a 1099, when the processor’s 1099-K already covers it.
Another avoidable error is issuing a 1099 to a law firm while omitting a medical vendor that is also a C corp. Both are required exceptions. Treat the exception list as a single checklist rather than a “legal fees only” rule, and you will catch the payments that matter.
Do This Week
- Pull a list of every vendor you paid $600 or more this year
- Request a current W-9 from any vendor missing one
- Check Line 3 on each W-9 to confirm the tax classification
- Flag every attorney, law firm, and medical provider on the list
- Confirm which payments went through cash, check, or ACH
- Remove card and platform payments from your 1099 list
- Tag exception vendors in your bookkeeping software
- Add the January 31 filing deadline to your calendar
- Build a “no W-9, no payment” rule into onboarding
- Call a CPA if your vendor list runs past 15 contractors
Final Thoughts
The C corp exemption is real, but it is narrower than the “corporations never get 1099s” myth suggests. Most payments to C corps are exempt, while legal fees, medical payments, and a few niche categories still require a form. The simplest defense is a W-9 on file for every vendor before the first payment. Spend an hour this week pulling vendor records and confirming classifications. A short effort now turns January from a scramble into a routine.
Photo by Zan Lazarevic: Unsplash
