Nonprofit 1099s Explained

Nonprofits have several filing deadlines quickly approaching on January 31st! Today, we’re tackling Forms 1099 and W-9! 

This time of the year, I get lots of phone calls and emails that start with:

• “When is this due?”
• “What do I do?”
• “How do I do this?”

So today, I want to tackle some common questions I get about Form 1099. 

What is a 1099? 

     The 1099 is an informational return that your organization should file with the IRS to report money you have paid an individual, not a corporation, although this can be a little tricky when an individual is doing business with an assumed name. The most common reason you would need to file this return is if you’ve paid an independent contractor a total of $600 or more throughout the previous tax year. 

Some examples of potential contractor pay include: 

• A landscaper who operates as a sole proprietor rather than a corporation
• An individual you paid to maintain your website or technical contract work
• A speaker or guest musician who provided their services for an event, church service, or fundraiser
• An off-duty officer who provided security services to a church during weekend services

If your organization paid them a total of $600 last year and they are not a corporation, then you are required to file Form 1099 with the IRS and provide a copy to the contractor by January 31st. 

What About Form W-9?

    It’s important to note that the W-9 is never filed with the IRS and is simply used internally to collect the information needed from the contractor to file their 1099. This document will spell out the contractor’s filing status, (sole proprietor, partnership, corporation, etc) so you know whether you need to file a 1099 or not.

      It is your responsibility, as a nonprofit,  to obtain a W-9 prior to paying the contractor so you don’t have to hunt that person down in January in order to get their info to file their 1099. Once the contractor’s work is done and they’ve been paid, they’re not as eager to get you this important information. 

     Collecting and securely storing a W-9 prior to paying a contractor should be a clearly documented step in your policies and procedures for utilizing contractors, so you’re never left scrambling to find a contractor’s social security number or EIN at the last minute. Even if you think they’re a corporation, just et their W-9 every time you start with a new vendor. You might be surprised by who is actually filing as an individual. But, if somehow you paid that contractor without collecting their W-9, then you’ll need to reach out to them as soon as possible to get that info. 

How to file 1099 Forms

• Most accounting softwares have this capability, either integrated into their system or through a third party service that they partner with. For instance, Blackbaud partners with a company called Aatrix to provide this filing service. 
• If you have a CPA or tax preparer, they may be able to offer this filing service for you. 
• At the very least, you can upload this information to a third party service who can both request the W9 and file the 1099 for a few dollars each. tax1099.com is one that I’ve heard of, but I’ve never used them personally. 
• While paper filing may still be an option, it’s extremely cumbersome and relatively expensive, so I don’t recommend that option. 

Make sure your contractor and the IRS receive separate copies of this form by January 31st. If you’re seeing this after January 31st and realizing you’re now late or you’ve missed someone,  you should still file the forms even though there will be a penalty applied. It’s better to comply late than to not comply at all.

Next Steps: 

1. Identify contractors who received at least $600 total in payments from your organization. 
2. Confirm that a W-9 has been collected for each contractor, telling you their filing status, contact info, and taxpayer ID. If you don’t have this W-9, get it asap. 
3. File 1099s with the IRS by January 31st. 
4. Send a copy to the contractor by January 31st, keeping in mind that they will need this document before they can file their own taxes. 

     Today we touched on the process of filing 1099s for contractors. On a broader note,  misclassifying employees as contractors is a very common mistake I see in nonprofits. That’s a much larger topic, but it’s just one of the essential concepts I cover in depth in my signature A to Z master course called The Financially Thriving Nonprofit launching February 6th. We’ll be opening the class to a new group of students in February and I don’t wan you to miss it! You can learn more about this opportunity in a live webinar on February 6th, by registering here! 

     If you have a specific or time sensitive question about an upcoming filing deadline, you can always book a consulting call with me at terisaclark.com to talk through your unique situation and quickly get you the answers you need.