If your organization makes payments to independent contractors or other non-employee service providers, you may need to issue a Form 1099 at the end of the year. The 1099 form is used to report miscellaneous income to the IRS, such as nonemployee compensation, rents, royalties, prizes and awards, attorney fees, and more. Just as you are required to issue annual W-2s to your employees, you are also required to issue Form 1099s to your non-employee contractors and service providers.
Beginning in 2020, the IRS has split the 1099 into two separate forms: Form 1099-NEC (for nonemployee compensation) and Form 1099-MISC (for other miscellaneous service payments).
Nonemployee compensation of $600 or more should be reported on Form 1099-NEC. This includes fees, commissions, and other forms of compensation for services performed for your organization by a nonemployee. There are four conditions that require reporting nonemployee compensation on Form 1099-NEC. If you meet all four of these conditions, you should file a Form 1099-NEC:
- You made the payment to someone who is not your employee.
- You made the payment for services (not products or merchandise).
- You made the payment to an individual, partnership, or other unincorporated entity. Most payments to corporations (except attorneys or law firms) do not need to be reported on Form 1099.
- You made payments to the payee totaling $600 or more during the year. If you paid them less than $600 total, you generally do not need to file a Form 1099-NEC.
The 2020 Form 1099-NEC is due to both the IRS and the recipient by February 1, 2021.
Miscellaneous service payments other than nonemployee compensation should be reported on Form 1099-MISC. This includes:
- Payments of at least $10 in royalties or broker payments in lieu of dividends or tax-exempt interest
- Payments of at least $600 in:
- Prizes and awards
- Other income payments
- Cash paid from a notional principal contract to an individual, partnership, or estate
- Fishing boat proceeds
- Certain medical and health care payments
- Crop insurance proceeds
- Payments to an attorney (other than fees for services)
- Section 409A deferrals
- Nonqualified deferred compensation
The 2020 Form 1099-MISC is due to the recipient by February 1, 2021, and due to the IRS by March 1, 2021 (for paper filing) or March 31, 2021 (for electronic filing).
There are many exceptions and qualifications to these rules for issuing 1099s. Some of the most common considerations include:
- Most payments to corporations (including LLCs that are treated as a C or S corporation) do not need to be reported on a 1099 form. To determine if your payee is a corporation, look at Box 3 and Box 4 of their W-9 form.
- Attorney fees should be reported on Form 1099-NEC, even if that attorney, law firm, or legal service provider is a corporation. (Legal services are an exception to the general rule that you do not have to report payments made to corporations.) Gross proceeds paid to attorneys should be reported on Form 1099-MISC instead – for example, settlement agreements or other legal payments that are not for the attorney’s service.
- Scholarships or fellowship grants that are paid for teaching, research, or other services as a condition for receiving the grant are considered wages and must be reported on Form W-2, not a 1099 form. Other scholarships or fellowship payments do not generally have to be reported to the IRS on any form.
It’s important that your nonprofit meets all filing deadlines and reporting requirements for 1099s. To make it easier, always be sure to request a Form W-9 from your independent contractors and service providers before issuing payment. This will ensure that you have all their tax information on file in case you need to issue them a 1099 at the end of the year.
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At Goldin Group LLC, we understand that as a business owner or non-profit manager, keeping up with accounting and taxes is time-consuming and can even be overwhelming. We can help you with non-profit audits, all of your small business write-offs, and tax preparation, and much more! We work with individuals and businesses in Maryland (DC Metro Area), offering a variety of financial services designed to save you time and lower your tax burden. If you are a business that is looking to outsource your accounting or if you need help managing any aspect of your business’s or nonprofit’s finances, we want to hear from you. Call us at (301) 913-0008 or email firstname.lastname@example.org to make an appointment.