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This Web site contains a compilation of more than a thousand consumer finance  columns written by Tony Novak from the 1980s through 2006, updated and reformatted for maximum usefulness today.  New material was added after 2010.

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Form 1099 tax reporting of health insurance premiums

originally posted:         revised: 1/23/2012

Q: I just want to double check, though, please on whether or not LLCs get 1099s for health insurance premiums. And what about PCs? Seems like I read a post on this list in the past pointing out that LLCs are limited liability "companies", not corporations, so they need to get 1099s. Is that correct? And what about PCs? A lot of accounting firms are PCs? I think PC stands for Professional Corporation, so I would think that PCs don't need 1099s? While I'm at it with the 1099 questions, I'm interpreting the rules as being that companies / corporations to whom you pay medical insurance premiums would need a 1099. And would that include dental insurance premiums?

A: Nothing in your post directly indicates that the LLCs, PCs or the company you pay for medical insurance should receive a 1099 from you. It is possible that there may be other facts and rare circumstances not mentioned that would indicate that you should send a 1099, but this is not common and based solely on the information in your question it is not apparent. For example, if the LLC is a one member company and essentially the LLC is simply a "DBA" then this would indicate that a 1099 should be sent. Most larger LLCs, however, elect to be taxed as corporations. But note that these circumstances, if they exist, would be the exception rather than the rule. In other words, small businesses generally do not send 1099s to the corporations that they contract to provide various business services.

PCs are, by definition, corporations; therefore normally exempt from 1099 requirements. One exception is that if the PC is a law firm providing business services more than $600, then a 1099 is used.

As a separate issue, if you are making your health and dental insurance premium payable to anyone other than a corporation, then you may wish to reconsider the safety of this practice in relation to protections under your state's insurance laws. This would generally not be considered normal or safe. Again, in general, health insurance is always paid to a corporation that does not receive 1099s.

The IRS's general advice on 1099s is 'when in doubt sent it anyway'. But as a practical matter of advice to a small business owner with more important things to do than send out extra 1099s, I suggest using the published guidelines included in the instructions for form 1099 to rule out sending as many 1099s as is reasonable. An interpretational error in this regard has minimal or no consequences.

For more information, see the 2011 Form W-2, IR-2011-31, Notice 2012-9 (restating and clarifying Notice 2011-28), Notice 2010-69, Notice 2011-28, frequently asked questions and our multimedia products — an IRS YouTube video and a webinar, Reporting of Employer Healthcare Coverage on Form W-2.

Rules for reporting of health insurance premiums changes next year. Businesses with more than 250 employees begin reporting health insurance premiums on an employee's W2 or sub-contractor's 1099 in 2012. Businesses with less than 250 employees may delay this reporting until 2013.

More resources:

Affordable Care Act Tax Provisions