Do Nonprofits Get a 1099 Form?

Do nonprofits get a 1099 form during tax season? If a nonprofit company hires and pays non-employees, the answer is yes. The company needs to issue 1099 forms to these workers so they can file their taxes with the Internal Revenue Service (IRS).

Find out more about how nonprofits handle tax season with our team at Easy Donation Pickup. Contact us online if you have additional questions about this process.

Understand How Nonprofits Function

Nonprofit organizations address many different issues around the country. These organizations often earn money. However, they put it back into the company or towards their adopted mission instead of treating it like profit.

Nonprofits also require help from other individuals, especially as they grow. For example, nonprofits may hire employees or contractors to complete tasks for the organization.

If your nonprofit hires workers, you need to provide them with W-2 forms. However, if your nonprofit brings on an independent contractor, you’ll have to issue Form 1099 to this individual.

W-2 Forms vs. Forms 1099

What’s the difference between a W-2 Form and Form 1099? The IRS expects businesses to issue W-2 forms to standard employees. Form 1099s, on the other hand, represent a miscellaneous form for taxes.

Individuals use this kind of form to report income outside of:

• Wages
• Salaries
• Tips

Nonprofits must provide 1099 forms to both vendors and contract workers. Many nonprofits choose to work with contractors instead of employees. Hiring contractors prevents nonprofits from getting into a tricky financial situation by hiring too many employees.

Additionally, some nonprofits prefer to only work with volunteers. Hiring volunteers helps them avoid payments or tax requirements. However, if you need to accomplish a task and cannot find a skilled volunteer, a contract worker may represent your best choice.

1099 Forms and W-9 Forms

If your nonprofit needs to issue 1099 forms, you also need to provide W-9 documents to your contractors. Specifically, you need to offer a W-9 to each worker handling the 1099 forms. The contract worker should fill out the W-9 form before they begin working for your nonprofit.

The IRS matches W-9 and 1099 forms during tax season, so the W-9 represents an essential document. Generally, W-9 forms are very straightforward. They require information about:

• An individual or business’s name
• An individual or business’s address
• The status of an individual or business

The status of the contractor or business refers to its description as a business. For example, the contractor may operate as a limited liability company (LLC) or a sole proprietorship.

When filling out this form, the contractor must enter either their social security number (SSN) or Tax ID number. The information on the W-9 form helps you know what to enter when issuing 1099s at the end of the tax year.

When Nonprofits Need to Issue a 1099 Form

Do nonprofits get a 1099? Not every nonprofit needs to issue 1099 forms. However, your organization may need to utilize these forms if you:

• Pay someone not acting as an employee
• Make the payment as a nonprofit organization
• Make the payment to an estate, vendor, individual, or partnership

Additionally, you only have to issue a 1099 form if you give the payee at least $600 in a tax year.

For example, let’s say you hire a decorator for a fundraising event for your nonprofit. You do not bring the decorator on as an employee; they agree to work for you as a contractor. You plan to issue their payment from the nonprofit’s funds.

The total cost for the decorating services comes to $750, including the costs for materials and setup. Therefore, your nonprofit must issue a 1099 form to the decorator you hired as a contractor.

Situations That Do Not Require a 1099 Form

You do not need to issue a 1099 for every payment made by your nonprofit. In addition, the IRS offers several exceptions to rules regarding 1099 usage.

For example, you do not need a 1099 form if you provide money through a fellowship grant or a scholarship. These forms of funding count as wages.

Individuals should report all standard wages through a W-2 form, not a 1099 form. 1099 forms generally only handle miscellaneous income.

Other types of payment exempted from 1099 forms include:

• Payments made to corporations
• Rent payments to real estate agents
• Payments for an employee’s business travel allowances
• Military differential payments for wages
• Cost for life insurance protection

Additionally, you do not need to issue a 1099 form for payments made for:

• Computers
• Merchandise
• Storage of goods or products

Finally, the IRS does not require a 1099 form if you make a payment to a tax-exempt organization such as:

• IRAs
• Coverdell ESAs
• HSAs
• Archer MSAs
• Federal or state governments
• U.S. possessions
• Foreign governments

These exemptions may appear complicated at first. You may want to speak with a tax professional if you have any questions about how and when to issue a 1099 form for your nonprofit organization.

Steps to Issue a 1099 Form to Contracted Employees

Sending out 1099 forms as a nonprofit takes some work. Ensure that you have the W-9 forms collected from all contracted employees before you begin the process. The W-9 documents should contain much of the information you need for the 1099s.

However, nonprofits often require additional information before sending out 1099s to contracted employees. Make sure that you have the details about:

• Your account number
• Proper tax withholding information from the employee
• The category of the payments

1099 forms are not very long. However, you may face penalties with the IRS if you misplace any information on the forms. So, we recommend verifying that you have every piece of information in the correct box.

Once you enter the information, you can send the 1099 forms to your contracted workers. Contractors use these forms when filing their tax returns for the year.

Types of 1099 Forms for Nonprofits

Keep in mind that your nonprofit may need to issue several types of 1099 forms, depending on your yearly expenses.

You issue a 1099-NEC form to all contractors you compensate through the year. However, you may also need to issue 1099-MISC forms in some cases. Use these forms for expenses related to:

• Rent
• Medical payments
• Attorney payments
• Royalties

Moreover, note that you do not have to pay a lump sum of $600 or more to a contractor to necessitate a 1099 form. You must give them a 1099-NEC form even if you’ve made multiple payments to them that exceed $600 over the past year.

1099 Forms and 1096 Forms

As a nonprofit, you’ll receive a 1096 form with your 1099 forms most of the time. The 1096 form allows you to list down and track all the 1099 forms you issue to contract workers. You should fill this form out as you complete your 1099s.

You should find instructions for completing the 1096 form enclosed with the document. However, you may reach out to a tax professional if you have questions about utilizing this form correctly.

Your Timeline for Getting 1099 Forms as a Nonprofit

Do nonprofits get a 1099 form? Many nonprofits have to issue 1099 forms, especially if they pay contract workers throughout the year. Contract workers rely on these forms to complete their taxes, so you have to issue them within a specific time frame.

Nonprofits cannot wait until April 15th to issue 1099 forms. In fact, you generally have to send these forms to your contract workers by the end of January.

Many workers prefer to get their forms earlier to start working on their taxes. January 31st is your deadline for sending the 1099s.

Penalties for Failing to Issue 1099 Forms on Time

The federal government can penalize you for failing to issue a 1099 form or time or filing these forms incorrectly. Generally, the government uses fines as a punishment in these situations.

You can expect the following penalties when failing to issue 1099s on time:

• Fines of $50 if you file within 30 days of the due date
• Fines of $110 if you file over 30 days from the due date but before August 1st
• Fines of $280 if you file after August 1st
• Fines of $570 if you intentionally fail to file a form

Note that these fines apply to each 1099 form submitted too late. Therefore, the penalties can stack up if you have multiple contract workers waiting on their papers.

Nonprofit Organizations and 1099 Forms

Do nonprofits get a 1099 form during tax season? Nonprofits that hire contract workers and pay them at least $600 must issue 1099-NEC documents. Other organizations may need to issue 1099-MISC forms to report payments made throughout the year.

You can learn more about how our nonprofit works by reaching out to us. Contact Easy Donation Pickup online to discuss the mission of our nonprofit.