What Are the Nonprofit 1099 Rules?

Many times, nonprofits have small budgets and the work at hand can be done in a shorter amount of time compared to a typical business. This is especially true of small nonprofits largely run by volunteers, like PTA/PTO, Church Groups, Booster, and Service Clubs. It takes a village to accomplish your nonprofit’s mission.

But nonprofits of all sizes need help from time to time. And that’s where outside contractors and vendors come in. But what is your responsibility to the IRS when it’s time to file your nonprofit tax returns? What are the nonprofit 1099 rules? We’re here with some FAQs to help you assess what you need to do to remain compliant.

What is Form 1099?

IRS Form 1099 is, in short, the tax form used to report miscellaneous income to the IRS. In most cases, your nonprofit is the one who is paying, and so you will have to submit the related forms to the vendor and the IRS. That way, the IRS knows to look for this income on the Vendor’s tax return. It’s different from salary and wages which are paid to employees and reported on a W-2.

What is the Minimum for Issuing a 1099?

You must issue a 1099 to vendors who were paid $600 or more in the tax year. However, if you withheld any federal income tax from a vendor payment, you must file a 1099 regardless of how much you paid the vendor. This would be very rare for most small nonprofits.

Who Qualifies as a 1099 Vendor for Nonprofits?

1099 vendors are often referred to as contractors, but it’s really anyone who provides services for your business. This could be a tax accountant, a website designer, electrician, copywriter, or anyone who does not fit the bill for a W-2 (see below). It’s not for goods you purchase. Walmart does not need a 1099 from you.

What’s the Difference Between 1099 and W-2?

Generally speaking, employees are on the payroll and receive a W-2 form. Payroll taxes are automatically deducted from the paychecks of W-2 employees and paid directly to the government by the employer. In contrast, a 1099 employee is not a part of payroll and is responsible for calculating and submitting their own payroll taxes to the government.

What’s the Difference Between 1099-NEC and 1099-MISC?

Form 1099-NEC is new for 2020. It used to report nonemployee compensation. Form 1099-MISC is still used for items like rent and some attorney fees. Check the IRS website or with your accountant for more information. https://www.irs.gov/forms-pubs/about-form-1099-misc

What’s Up with Form 1096?

All these “ten” style forms might have your head spinning. But you’ll get the hang of it. Form 1096 is also required and serves as a summary for reporting all non-employee compensation to the IRS. For example, if you have three 1099 vendors, you would send the red Copy A of each 1099-NEC to the IRS along with one summary 1096. Copy B goes to the Vendor. You keep Copy C.

How Do I Collect Information for 1099 Vendors?

IRS Form W-9 Request for Taxpayer Identification Number allows you to formally gather the 1099 vendor’s information. This way your 1099 can be accurately filled out when the time comes. You or your vendor can download W-9 forms from the IRS website. Have each contractor fill out the form and return it to you before you pay them any money. That way you know you have their tax information when it’s time to report to the IRS. Your financial software will tell you the total you paid to the vendor in the calendar year.

When are Nonprofit 1099 Forms Due?

File form 1096 along with the individual forms for each vendor before January 31st, ideally earlier. Note that you cannot download 1099 forms from a website. You will either need to purchase them at an office supply store or order them free from the IRS.

Make Nonprofit Tax Returns Easy

Grab your favorite drink (preferably caffeinated) and put your head down and you can accomplish your nonprofit tax returns accurately and on-time. We promise. There is great information on the IRS website. Speak with a tax specialist at the IRS if you’re unsure: (877) 829-5500.

MoneyMinder customers have it easy when it comes to tax filing time. Using the slick 990-EZ feature, the totals for each form field are automatically calculated.

Want to learn more about bookkeeping with MoneyMinder and make your next tax season a breeze? Get started with a free trial today. No credit card required.