2023 is almost over! As the year winds down, it’s time to start thinking about 1099 forms. Just like any other business, nonprofit organizations must prepare 1099 forms for any independent contractors that were paid during the 2023 calendar year. If your organization made payments for nonemployee compensation, rents, royalties, prizes, awards, attorney fees, or other services between January 1, 2023 and December 31, 2023, you may need to issue a Form 1099.
In most cases, your organization must send the 1099 form to the recipient (the person or business that you paid) no later than January 31, 2024. And since 1099 forms cannot be finalized until after the year ends, this gives you a limited window of time in which to prepare these forms. It’s important to make sure your books are fully up to date, all payments have been recorded, and you have the correct tax information for all of your contractors.
Note: 1099s are based on the date of payment, not the date of the bill or invoice. For example, if a contractor sends you a bill dated December 19, 2023, but you don’t write a check until January 3, 2024, then you don’t have to worry about it right now. It doesn’t matter what date is on the bill, or when you receive the bill. It only matters when you pay it. If you pay the bill in 2023, then you should report it on your 2023 forms. If you pay the bill in 2024, then you will report it on next year’s 2024 forms.
For the calendar year ending December 31, 2023, these are the deadlines for the most common types of 1099 forms issued by nonprofits:
Form 1099-NEC
E-file to the IRS by January 31, 2024
Paper file to the IRS by January 31, 2024
Send to recipient by January 31, 2024
Form 1099-MISC
E-file to the IRS by April 1, 2024
Paper file to the IRS by February 28, 2024
Send to recipient by January 31, 2024. (If there is any data in Box 8 or Box 10 of the 1099 form, you have until February 15, 2024, to send to the recipient.)
If your organization has 10 or more informational returns to file – which includes both 1099s and employee W-2s, as well as other informational returns – you must file electronically. Paper filing is not an option if you are issuing 10 or more forms.
Form 1099-NEC
The 1099-NEC is used to report nonemployee compensation (including fees, commissions, and other forms of compensation for services performed for your organization by a nonemployee). This might include independent contractors, consultants, accountants, attorneys, cleaners, landscapers, and any other self-employed individuals or non-incorporated companies hired by your organization.
To determine whether you need to issue a Form 1099-NEC, ask yourself these questions about the person or business that you paid:
Did they receive nonemployee compensation for services rendered to your organization? Any employee compensation (salaries or wages) belongs on a W-2 form. Non-service payments (for the purchase of goods/products) are not typically reported on a 1099 at all.
Between January 1 – December 31, did you pay them a total of $600 or more in nonemployee compensation? Total compensation of less than $600 does not need to be reported on the 1099-NEC.
Are they classified as an individual/sole proprietor, single-member LLC, trust/estate, partnership, or LLC classified as a partnership? With some exceptions - such as attorney fees - payments made to corporations are not reported on the 1099. You can find the payee’s tax classification on their W-9 Form.
If you answered “Yes” to all of those questions, then you need to issue a 1099-NEC.
Form 1099-MISC
The 1099-MISC is used to report other miscellaneous service payments. For example, if your organization pays rent or gives out cash prizes and awards, you may need to issue a Form 1099-MISC.
Ask these questions about your payees to determine whether you need to send them a 1099-MISC:
Between January 1 – December 31, did you pay them a total of:
$10 or more in royalties or broker payments?
$600 or more in rent, prizes, awards, fishing boat proceeds, medical and health care payments, crop insurance proceeds, gross proceeds paid to an attorney, Section 409A deferrals, or nonqualified deferred compensation?
Are they classified as an individual/sole proprietor, single-member LLC, trust/estate, partnership, or LLC classified as a partnership? With some exceptions - such as gross proceeds paid to attorneys - payments made to corporations are not reported on the 1099. You can find the payee’s tax classification on their W-9 Form.
If you answered “Yes” to both of those questions, then you need to issue a 1099-MISC.
Although these are most common type of reportable payments, there are other reportable payments not described here. There are also many exceptions. For example, payments made to a real estate agent or property manager do not typically require a Form 1099-MISC (although the real estate agent or property manager may have to report the rent paid over to the property owner). For complete instructions on all reportable payments and exceptions, ask your accountant or visit https://www.irs.gov/instructions/i1099mec.
