1099 Filing Requirements for Nonprofits
Your nonprofit's tax-exempt status does not remove its 1099 reporting obligations. Learn the essential process for contractor payments to maintain compliance.
A nonprofit’s tax-exempt status does not eliminate its responsibility to report certain financial activities to the Internal Revenue Service (IRS). Like for-profit businesses, nonprofits must adhere to specific information reporting rules for payments made to individuals and unincorporated businesses. These reporting obligations are part of maintaining financial transparency and compliance with federal tax law, which is a separate matter from an organization’s exemption from income tax.
Determining Who Receives a Form 1099
A nonprofit must issue a Form 1099 to any individual, partnership, or estate to whom it has paid $600 or more for services during a calendar year. This rule distinguishes between independent contractors and employees, who receive a Form W-2. An independent contractor controls the means and methods of their work, provides their own tools, and offers services to the general public, unlike an employee whose work is directed by the employer.
Reportable payments are primarily for services rendered to the nonprofit. This includes fees for guest speakers, payments to a freelance grant writer, consulting fees, graphic design services, or maintenance work. Payments for tangible goods or products are generally not reportable on a Form 1099.
Certain exceptions apply to this general rule. Payments made to most C Corporations and S Corporations do not require a 1099 form. However, an exception to this corporate exemption involves payments for legal services. All payments of $600 or more for attorneys’ fees must be reported, regardless of whether the law firm is incorporated.
Information and Forms Needed for Filing
The primary tool for gathering the necessary information from a payee is Form W-9, “Request for Taxpayer Identification Number and Certification.” It is a best practice for a nonprofit to collect a completed W-9 from every vendor before issuing any payment. This ensures all required data is on hand when it’s time to prepare the information returns.
From the completed Form W-9, the nonprofit will obtain the payee’s legal name, business name (if different), current mailing address, and their Taxpayer Identification Number (TIN). The TIN will be either an individual’s Social Security Number (SSN) or a business’s Employer Identification Number (EIN).
The two main forms nonprofits will use are Form 1099-NEC, “Nonemployee Compensation,” and Form 1099-MISC, “Miscellaneous Information.” Since 2020, Form 1099-NEC is used specifically to report payments of $600 or more to independent contractors for services. Form 1099-MISC is now used for other specific payments, such as rent, prizes, awards, and payments to an attorney.
The Filing Process and Deadlines
The deadline for nonprofits is January 31. By this date, a copy of Form 1099-NEC must be sent to the recipient and also filed with the IRS. This single deadline requires diligent preparation.
Organizations have two primary methods for filing with the IRS: paper or electronic. For those filing by mail, a summary document, Form 1096, “Annual Summary and Transmittal of U.S. Information Returns,” must accompany the paper copies of all 1099s being sent.
Electronic filing (e-filing) is often a more efficient option and is mandatory for organizations filing 10 or more information returns in aggregate. The IRS offers a free online portal called the Information Returns Intake System (IRIS) that allows organizations to e-file their forms. Third-party software is another common tool for e-filing.
Consequences of Non-Compliance
Failure to comply with 1099 filing requirements can lead to financial penalties from the IRS. Penalties are assessed for failing to file on time, failing to provide a copy to the recipient, or filing with incorrect information. For filings due in 2025, the base penalty is $60 per form if filed within 30 days of the due date, $120 if filed more than 30 days late but before August 1, and increases to $330 per form if filed on or after August 1.
A more immediate consequence of non-compliance is the requirement for backup withholding. If a nonprofit fails to obtain a correct TIN from a vendor on a Form W-9, it may be required to withhold 24% of future payments to that individual or business. These withheld funds must then be remitted directly to the IRS.