The main exempt payees are corporations, tax-exempt organizations, government entities, IRAs and HSAs, and your own employees. Certain payment types are outside reporting too, regardless of who receives them. But the corporate exemption is the one worth learning properly, because it has five carve-outs and they cover the payees a CPA firm actually pays most often.

Which payees are exempt?

• Corporations, including an LLC treated as a C or S corporation. Subject to the carve-outs below.

• Tax-exempt organizations, and IRAs, HSAs and similar accounts.

• Government entities.

• Employees: their pay goes on a W-2, not a 1099.

• Recipients of foster-care difficulty-of-care payments within the statutory limits, and scholarship or fellowship recipients outside specific conditions.

Which payment types are exempt regardless of payee?

Payments for merchandise, and for freight, storage, telegrams, telephone and similar items. The reporting rules target payments for services and the specific income types each box names, not the purchase of goods. A $40,000 equipment invoice from an unincorporated supplier generates no 1099-NEC.

What are the exceptions to the corporate exemption?

These five, and this is the section to actually remember:

• Attorneys' fees: 1099-NEC box 1a, even to an incorporated law firm. $2,000 for 2026.

• Medical and health-care payments: 1099-MISC box 6, even to an incorporated practice. $2,000 or more.

• Gross proceeds paid to an attorney: 1099-MISC box 10, at $600 or more. Different statute, different threshold.

• Fish purchased for resale: $600 or more in cash, if you're in that trade.

• Federal executive agency payments to vendors, corporations included.

A page that stops at "corporations are exempt" is not just incomplete, it's actively misleading for the two payee types a firm meets most often.

Doesn't an exempt payee still mean I need something on file?

Yes. Exemption is a conclusion you have to be able to support, and the support is a W-9. Nothing on an invoice tells you whether "Halcyon Partners LLC" is disregarded, a partnership, or an S corporation, and the three answers point three different ways. Collecting the W-9 before the first payment is the whole control; reconstructing classification in January from company names is where the errors come from.

Over-issuing isn't a safe hedge either. A 1099 sent to an exempt corporate payee creates a reconciliation item on their return and yours, so "send one anyway to be safe" has a cost.

Where this actually breaks at intake

Exemption is a fact about the payee, captured at onboarding, applied in January. Firms that get burned aren't the ones that misread the rule; they're the ones deciding in the last week of January, from a vendor list of company names and totals, which payees were exempt all along. By then the only options are guessing or chasing W-9s from people with no reason to hurry. That's a document-collection problem well upstream of the tax question, and the whole fix is a W-9 before the first payment rather than an exemption debate in January. If the payee in front of you is an LLC, that classification question has its own answer: does an LLC get a 1099?