Like Form W-2, which is used to report year-end employee wages, Form 1099 is another type of year-end IRS tax form. But while W-2s are used for employee wages, 1099s are used for nonemployee compensation and other miscellaneous service payments.
If your organization paid any independent contractor or nonemployee for their services, you may need to prepare a Form 1099. You do not typically need to issue a 1099 to C corporations, S corporations, or LLCs that are classified as a corporation. You also do not normally need to issue a 1099 for payment of goods or merchandise.
There are several different versions of the 1099 form. The most common version that most nonprofits should be aware of is Form 1099-NEC.
The 1099-NEC form is used to report compensation for services performed by a nonemployee. This includes payments to independent contractors, consultants, or any other self-employed individual or non-incorporated company hired by your organization to perform a service.
To determine whether you need to issue a Form 1099-NEC, ask yourself these three questions:
Are they an independent contractor or nonemployee? Remember, employee compensation belongs on a W-2 form. 1099s are only for nonemployees.
Between January 1 – December 31, did you pay them a total of $600 or more in nonemployee compensation?
For tax purposes, as they classified as an individual/sole proprietor, partnership, or trust/estate? (Hint: You can find the payee’s tax classification on their W-9 Form.)
If you answered “Yes” to all three of these questions, then you likely need to issue a 1099-NEC.
Some nonprofits may also need to issue Form 1099-MISC, which is used to report royalties, rent, prizes, awards, or other miscellaneous service payments. It’s important to note that the threshold for reporting royalties is only $10 annually. (The threshold for other miscellaneous service payments is $600.) For more information, see the IRS instructions for Form 1099-MISC.
For the 2024 tax year, the 1099-NEC deadlines are:
E-file to the IRS by January 31, 2025
Paper file to the IRS by January 31, 2025
Send to recipient by January 31, 2025
For the 2024 tax year, the 1099-MISC deadlines are:
E-file to the IRS by March 31, 2025
Paper file to the IRS by February 28, 2025
Send to recipient by January 31, 2025
While you can’t usually start preparing your 1099s until after year-end, you can take time now to get your payment records organized and make sure you have a current W-9 form for all of your independent contractors.