What Your Organization Needs to Know About Form 1099-MISC


It’s January, and you know what that means - time to file your Form 1099-MISC with the IRS. Although this is nobody’s favorite way to start the new year, it’s necessary for nonprofit organizations to report payments for contract services. Failing to do so can result in serious penalties. Your 1099-MISC forms are due to the recipient by February 1st.

So who needs to get a Form 1099-MISC? According to the IRS, if your organization made any payments in 2015 that meet the following four conditions, you are required to report the payment as non-employee compensation:

  1. You made the payment to someone who is not your employee

  2. You made the payment for services in the course of your trade or business (including government agencies and nonprofit organizations)

  3. You made the payment to an individual, partnership, estate, or in some cases, a corporation

  4. You made payments to the payee of at least $600 during the year

You are also required to send a 1099-MISC to any person whom you have paid at least $10 in royalties during the year.

Fortunately, not every payment that meets the above conditions necessarily requires a 1099-MISC. Here are some common exceptions:

  • Generally, payments to a corporation (including a limited liability company (LLC) that is treated as a C or S Corporation). There are some exceptions to this - check the IRS instructions for Form 1099-MISC for more details.

  • Payments for merchandise, telegrams, telephone, freight, storage, and similar items.

  • Payments of rent to real estate agents. But the real estate agent must use Form 1099-MISC to report the rent paid over to the property owner.

  • Wages paid to employees (report on Form W-2, Wage and Tax Statement).

  • Military differential wage payments made to employees while they are on active duty in the Armed Forces or other uniformed services (report on Form W-2).

  • Business travel allowances paid to employees (may be reportable on Form W-2).

  • Cost of current life insurance protection (report on Form W-2 or Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.).

  • Payments to a tax-exempt organization including tax-exempt trusts (IRAs, HSAs, Archer MSAs, and Coverdell ESAs), the United States, a state, the District of Columbia, a U.S. possession, or a foreign government.

  • Payments made to or for homeowners from the HFA Hardest Hit Fund or similar state program (report on Form 1098-MA).

  • Compensation for injuries or sickness by the Department of Justice as a public safety officer disability or survivor's benefit, or under a state program that provides benefits for surviving dependents of a public safety officer who has died as the direct and proximate result of a personal injury sustained in the line of duty.

  • Compensation for wrongful incarceration for any criminal offense for which there was a conviction under Federal or State law. See section 139F, Certain amounts received by wrongfully incarcerated individuals.

Although prizes and awards in excess of $600 must be reported, scholarships and fellowship grants should NOT be reported on Form 1099-MISC. Scholarship or fellowship grants that are taxable to the recipient (because they 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. Other taxable scholarship or fellowship payments (to a degree or nondegree candidate) do not have to be reported by you to the IRS on any form.

Your organization should make a habit of obtaining a W-9 from all qualified service providers before making any payments at all, rather than waiting until the last minute - which is now! Not sure if you need a W-9 from your payee? It’s always better to be safe than sorry. Collect their W-9 at the time of service, even if you discover that a 1099-MISC is not needed later.

The Form 1099-MISC can be a complicated and confusing tax document, especially if your organization makes many payments to independent contractors or other qualified service providers. Your accountant can answer your questions and help navigate the complex world of 1099 reporting.