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Form 1099-MISC Reporting: What You Don't Know Can Hurt You

​Exempt organizations provide Form 1099-MISC to report certain types of payments made in the course of carrying out their mission. Often, a nonprofit will need to employ vendors or contractors to carry out services necessary to run the organization.  The use of outside contractors and vendors can give rise to the need to provide Form 1099-MISC to the payment recipients and to the IRS.

In general, organizations will be required to file Form 1099-MISC when payments of $600 or more are made in one year to persons, vendors, subcontractors and independent contractors for the provision of services.  Typically Form 1099-MISC is required in the following situations: payments for service (including parts and materials); payments for medical and health care payments; prizes and awards; proceeds paid to attorneys and rents.   In addition, payments of $10 or more for royalties must also be reported on form 1099-MISC.

There are several exceptions to the general rules with regard to filing Form 1099-MISC.  Payments to corporations are excluded from 1099-MISC reporting unless the payments constitute gross proceeds to an attorney or medical and health care organizations.  Since most exempt organizations are set up as corporations, this means that payments between exempt organizations rarely require the filing of Form 1099-MISC.  Conversely, when the recipient is an individual, partnership, a limited liability company treated as a partnership or sole proprietorship, a 1099-MISC will be required.  Other types of payments made to corporations may be reported using Form 1099-MISC, but is not required.

All vendors, contractors and other payment recipients should submit Form W-9 to your organization.  The W-9 will provide you with the name, address and taxpayer identification number for the vendor, which is the information you will need when preparing any 1099-MISC forms.  It is important to have a standard process for obtaining Forms W-9 from all vendors to document their correct information for preparing the Forms 1099, as well as to protect against the requirement to withhold income tax from vendors who do not provide this information to your organization.

Your organization should track vendor payments in your accounting system. Your organization will need to be able to determine which payment falls under any of the categories listed above as reportable payments.  Your accounting system should be able to identify the total annual payment to these vendors even if multiple payments are received from one vendor.

Congress has recently increased penalties for late filing and failure to file Form 1099-MISC.  The following penalties will be in effect for the year 2014:

  • $30 penalty for filing a 1099 not more than 30 days late;
  • $60 penalty for filing a 1099 more than 30 days late and before August 1;
  • $100 penalty for filing a 1099 on or after August 1;
  • $250 penalty for intentional failure to file.

As mentioned earlier, if a payee does not provide you with their correct taxpayer identification number, your organization will be required to withhold income tax from their payments at a rate of 28%; failing to file the Form 1099-MISC can subject your organization to pay this tax on behalf of the vendor after the fact.

Exempt Organization should provide the appropriate recipients with his or her copy of the Form 1099-MISC by January 31 with regard to reportable income for the previous calendar year.  The IRS should receive Form 1099-MISC by February 28 if paper filed or by March 31 if electronically filed with the IRS.  Organizations may request a 30-day extension to file Forms 1099 with the IRS using Form 8809. An extension does not permit additional time for providing the 1099 to the recipient, however.

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David Lowenthal

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