Do You Need to Give a 1099-Misc to Insurance Agencies?

Do You Need to Give a 1099-Misc to Insurance Agencies?
Do You Need to Give a 1099-Misc to Insurance Agencies? | ZoltanFabian/iStock/GettyImages

Many business owners get confused about the requirement to provide 1099-MISC forms to any independent contractors and vendors, as well as to the Internal Revenue Service. It's important to understand the requirement, because business owners can face stiff penalties for failure to provide 1099-MISC forms.

1099 Forms and Insurance Agencies

You do not have to send a 1099-MISC form to corporations, nor to limited liability companies which have made an election to be treated as corporations for income tax purposes. It would be highly unusual, if not unheard of, for an insurance agency to function as anything other than a corporation or a limited liability taxed as a corporation. You also don't need to 1099 the agent, since you make your premium payment checks out to the agency or carrier, and not to the agent himself.

1099 MISC Forms

A 1099-MISC form is a type of information return. These are not income tax returns but are supporting documents to help the recipients determine their own tax liability. Since the sender typically must forward copies to the IRS, these forms also serve as a check and balance to assure compliance with the tax code.

General Rule for 1099 Forms

Generally, if you operate a business, you must send a Form 1099-MISC to every independent contractor, sole proprietor or partnership from whom you bought more than $600 in goods or services, or to whom you paid more than $10 in royalties.

Exceptions

The IRS does not require you to send a form 1099-MISC on any transactions you made that were personal in nature, rather than business. You must send these 1099s if you are engaged in a trade or business, or operating a tax-exempt organization.

Limited Liability Corporations

While the law does not require you to send a 1099 to a corporation, nor to an LLC that has elected to be taxed as a corporation, you will have no way of knowing whether an LLC with whom you are doing business has done so. If you have been doing business with an LLC, and you aren't sure whether it is filing as a corporation or as a partnership, consider sending the 1099-MISC. There is no downside to doing so, and the company may appreciate that you have made its bookkeeping easier.