Nonprofits must stay compliant and aware of their tax responsibilities when legally engaging with independent contractors. IRS reads employees and independent contractors differently, so Non-profits must be conversant with 1099 forms. In this blog, we will discuss what 1099 is, when it must be issued, and how Nonprofits can accurately fill out the form.
You must go through multiple responsibilities and tasks as a nonprofit professional. With your primary focus dedicated to accomplishing your organization’s mission, it can be difficult to keep up with tax regulations and the paperwork that comes with them. This is why, when considering hiring independent contractors, all taxpayers, including Non-profits, have an important responsibility to understand the 1099 form and when it should be issued.
To help you ensure that your organization is operating legally and compliant with IRS regulations, we will discuss in more detail what 1099 is, when it needs to be issued, and how Nonprofits can accurately fill out the form.
Understanding Form 1099
The 1099 form is an IRS document that organizations use to report payments made to independent contractors and others who are not considered employees. This includes individuals hired on a freelance or contractual basis, companies that provide services, and any other legal entity receiving payment from the organization. To clarify, let’s take an example if you hire a contractor to build a website for your organization and pay him/her $600 or more; you need to issue them a 1099 form.
When do Nonprofits Need to Issue Form 1099?
Nonprofits should issue Form 1099 when they pay $600 or more in a year to non-employees for services rendered. This includes payments made to independent contractors, freelancers, sole proprietors, and non-employees who are not subject to employment taxes (e.g., Social Security and Medicare) under the Internal Revenue Code.
When completing Form 1099, a Non-profit must provide the recipient’s name and Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN). In addition, the nonprofit must also provide the IRS with a copy of this form.
Nonprofits must keep accurate records of their financial activities to prepare and file Forms 1099 at the end of the calendar year. This includes tracking payments to non-employees and ensuring they receive their required forms promptly.
How To Collect And Report 1099s For Your Independent Contractor
To properly complete Form 1099, Nonprofits should collect the following information from their recipients. To get this, Nonprofits can use Form W-9, which requests information such as the recipient’s name and address, taxpayer identification number (TIN), type of income, and amount. Here’s the list of information you’ll need to collect:
1) Name of the recipient
2) Address of the recipient
3) TIN or Social Security Number (SSN) of the payee
4) Type of income and amount paid to the recipient
5) Date payment was made to the recipient
6) Tax ID Number
It is recommended to get the IRS form W-9 filled out by the contractor or the recipient for more reliable information. This form should be obtained before you make any payments to the recipient and kept on record.
What All Information Do You Need To Report On Form 1099?
Once the necessary information is collected, it should be reported on Form 1099. Here’s the list of information you’ll need to report:
1) Name and address of the recipient
2) Social Security Number (SSN) or Tax Identification Number (TIN) of the payee
3) Type of income reported
4) Amount of income received
5) Tax withholding information if any, was done
6) Other details as listed on IRS Form 1099.
It is important to note that Form 1099 may be used for more than one type of payment and income, such as interest income, non-employee compensation, and miscellaneous income, to name a few. Different forms may be required for each type of payment and income reported. To ensure accuracy, it’s important to double-check all information before submitting the form.
Timeline For Issuing Form 1099
Form 1099 must be issued by January 31 of the year after the income was paid. If you are filing electronically, this deadline is extended until March 31. For example, if you provide Form 1099 for income paid in 2023, it must be issued no later than January 31, 2024.
Failure to File Form 1099
If you fail to file Form 1099 by the due date, you may be subject to fines and penalties. The IRS levies a penalty of up to $280 for each form not filed correctly or on time. The penalty amount depends on when the form is filed, with later filing dates resulting in higher penalties.
eFile Form 1099 And Request W-9 With Tax1099
The hectic filing season can be eased using the IRS-approved eFiling service Tax1099! We understand that, as a nonprofit organization, you already have a lot on your plate during this period, but the Tax1099 platform allows you to quickly and accurately file 1099 forms for all of your independent contractors.
With Tax1099, you can:
1) Request W-9s from contractors – Use Tax1099 to send digital W-9 forms to your contractors and make it simple for them to complete the form. You can also easily track who has filled out their W-9 form in your dashboard and when they completed it!
2) File Forms 1099 with the IRS – With Tax1099, you can securely and accurately file your 1099 forms with the IRS in just a few clicks. Plus, our intuitive platform makes it easy to review your documents before they are sent to ensure accuracy.
3) Send Copies to Contractors – Tax1099 also allows you to quickly generate and email copies of each contractor’s 1099 form to them directly. This ensures your contractors have the information they need for their taxes and that you remain compliant with IRS regulations.
4) Streamline Tax Reporting – With Tax1099, you can easily keep track of all of your tax forms in one place, ensuring accuracy and efficiency when it comes time to file. Our platform also eliminates the need for manual data entry, so you can stay organized and save time during tax season.
With features such as Bulk W-9, scheduled eFiling, real-time TIN verification, and full IRS compliance, Tax1099 simplifies managing your contractors’ taxes so you can focus on growing your business.
Plus, with dedicated customer service and secure data protection, Tax1099 is here to help you make tax time easier than ever before. Sign up today to start taking advantage of everything our platform offers. We look forward to helping you simplify the filing process.