Multi member SCorp pays one of it's member's companies for services as a subcontractor. The company receiving payment is organized as a Sole Prop Sch C Filer. The SCorp would issue a 1099 to that shareholders SSN. Additionally, the shareholders will all receive W2s for other work completed and distributions as profits allow. Are there any issues here?

I am aware members of an SCorp should be paid as employees when performing services for the SCorp. My question is can you have both?

The SCorp members are not looking at it as if this particular work is being performed in the typical administrative capacity that the member has served in the past. In reality the member did none of the actual work the employees of his Sole Prop company did the work for the SCorp. I could not see the paying of wages and dealing with the associated payroll taxes in this case appropriate as there would of been materials and other expenses associated with the work that was done.

Think General Contractor for the SCorp and specialty construction contractor (i.e. Electrician) for the Sole Prop owned company. SCorp General Contractor has hired one of it's shareholders companies to perform work on one of their projects.

Perhaps I'm looking for issues where they are none and this is correct treatment, I am just trying to be certain that this is an acceptable arrangement.

Thank you in advance for any thoughts on this.

Multi member SCorp pays one of it's member's companies for services as a subcontractor. The company receiving payment is organized as a Sole Prop Sch C Filer. The SCorp would issue a 1099 to that shareholders SSN. Additionally, the shareholders will all receive W2s for other work completed and distributions as profits allow. Are there any issues here?========>>You guys are S corp owners/shareholders and also employees NOT members of the S corp UNLESS the biz is a MMLLC;however, S Corp shareholders are statutory employees. Independent contractor treatment isn't appropriate as an S corp owner/shareholder or EE. S corp shareholder/employee may provide some services for the S-corp as subcontractor and the S-corp may pay him for these services for the S corp and issue the form 1099-misc.
Generally such payment would be treated as a biz expense for the S-corp and self-employment Sch C income for the svc provider.


I am aware members of an SCorp should be paid as employees when performing services for the SCorp. My question is can you have both? =====>correct and yes he has both

Thank you for the quick response! I appreciate the reply Wnhough.

I feel better about the sole prop continuing to do work for the SCorp in a subcontractor capacity. The key is now to remind them that they also should be receiving a salary from the SCorp along with the other shareholders actively working in the SCorp if profits allow. So many small SCorps fail to do this.

Apologies if I used confusing terminology with regard to the SCorp "members"/shareholders. I was just trying to be clear that there was more than one shareholder in the SCorp as opposed to trying to indicate they were a MMLLC (which is not the case).

Thank you again.

An S-Corp may issue a 1099MISC for an independent contractor for services provided on a periodic or one-time basis common area of mistake or confusion is the practice of an S-Corp issuing its own employees or shareholders 1099MISCs. An S-Corp may not issue a 1099 in place of a reasonable salary to an employee. For instance, if there is a single employee in an S-Corp, they must be paid a reasonable salary (at least quarterly), the S-Corp must pay payroll taxes on those Social Security and Medicare benefits and file the appropriate forms (including but not limited to 941s and W-2s).