Do nonprofits have to send out 1099s?
Probably! If your nonprofit hired one or more independent contractor who was paid $600 or more in the previous tax year, then you have to issue a Form 1099 to that independent contractor so they can use it to file their taxes. While some nonprofits who do not hire independent contractors may not need to send out any 1099s, many nonprofits are required to file 1099’s. The deciding factors in whether a nonprofit needs to issue a Form 1099 to someone is whether the nonprofit paid more than $600 to the individual in the previous tax year and if the person is an independent contractor (or an employee, in which case they would receive a w-9 instead).
Few nonprofits operate without some type of paid staff, whether it’s employees or contractors. For many new and small nonprofits, having full-time employees may be costly, and hiring itself is a big risk. While the IRS has clear guidelines on what when someone is an employee vs an independent contractor, it’s not uncommon for nonprofits new and old to hire independent contractors.
Should my nonprofit issue a 1099 or a W-2?
Anyone who does not meet the employee test is an independent contractor. The guidelines for nonprofits around independent contractors and 1099’s are the same as for the private sector: Any independent contractor who is paid more than $600 per year should be issued a Form 1099. Find out more about how to tell if someone is an independent contractor or an employee here.
How to issue a 1099:
- Collect a completed Form W-9 from your independent contractor(s) with their business type, name, address, and signature. This document provides you the information you need to complete the Form 1099-NEC.
- Calculate the total amount you paid them for the year.
- Complete the Form 1099-NEC in and file it with the IRS by January 31st. If filing by paper, include a Form 1096 to transmit the 1099-NEC.
- Send a copy of the Form 1099-NEC to the Independent Contractor as well. They will use it to file their taxes.
Step 1: Getting a W-9 from an independent contractor
When getting a W-9 remember to start early! You need to issue 1099’s to independent contractors for last year’s payments by January 31st of the following year, so you’ll do everyone a favor by collecting the W-9 in advance. If you know when you start working with a new independent contractor that they will be paid more than $600 this calendar year, then you might as well just collect it when you hire them for the job!
You also need to make sure they actually filled the whole form out. It’s important to have their business type, name, address, and their signature. If they didn’t fill out the whole form you’ll have trouble issuing the 1099 later!
When storing the filled-out W-9, be sure to store it in a secure place as it includes sensitive information, so be sure to store it securely! Some bookkeeping software includes services to manage these forms. Larger, more established nonprofits may use such software, but often newer, smaller nonprofits may manage these files manually.
Step 2: Figuring out how much you paid an independent contractor.
Almost every nonprofit will have a bookkeeper who should be able to answer this question. It’s as simple as adding up all the payments you made to this independent contractor. If you use a bookkeeping program like Quickbooks they are likely entered as a vendor, and you may need to generate a report. Your bookkeeper or accountant should be able to help get this information.
Step 3: Complete and file Form 1099-NEC with the IRS
There are actually many different 1099 forms for different types of payments. While there could be special cases where a nonprofit may need to fill out something other than a 1099-NEC, when dealing with independent contractors you need the 1099-NEC, which stands for “non-employee compensation”.
Where do you find the form 1099-NEC?
You can find the general instructions for paper and electronic filing here. You can find both the e-File links and printable PDF versions here on the IRS Forms, Instructions and Publications Search.
How do you file the 1099-NEC with the IRS?
The IRS recommends that you E-File the 1099-NEC. The IRS has links to the E-Filling page and downloadable PDFs of the 1099-NEC here on the IRS Forms, Instructions and Publications Search.
Step 4: Send a copy of the 1099-NEC to the Independent Contractor
This one’s pretty straightforward: after you have completed the form, there will be a copy of for the independent contractor. Send this to them either in the mail or digitally.
Many people add a password to the digital document or share it via a secure platform. Some bookkeeping tools even manage this for you!