Do I Send a 1099 to a Nonprofit?

Businesses use Form 1099 to report various payments made throughout a tax year. These forms allow the Internal Revenue Service (IRS) to track income not classified as employment wages, verifying that entities are accurately reporting their income. The responsibility for completing and sending these forms lies with the business that made the payment.

Determining the Need to Issue a 1099

A business must issue a Form 1099-NEC, Nonemployee Compensation, when it pays $600 or more to a person or unincorporated entity for services rendered in the course of its business. This applies to payments made to independent contractors, freelancers, and other service providers not on the company’s payroll. The $600 threshold triggers this reporting obligation for a calendar year.

The recipient’s business structure is a factor, as payments to corporations are exempt from 1099 reporting. This exemption exists because corporations have their own distinct tax reporting obligations. Since most nonprofit organizations are legally structured as corporations, payments made to them for services do not require issuing a Form 1099.

It is important to distinguish between paying a nonprofit for services and making a charitable contribution. A payment for a service, like a nonprofit catering an event, falls under the reporting rules. In contrast, a donation is a gift and not a payment for goods or services, so it is never reported on a Form 1099. The nature of the transaction dictates the reporting requirement.

Exceptions to the Corporation Rule

While payments to corporations are exempt from 1099 reporting, several exceptions require a business to issue a form regardless of the recipient’s corporate status. These exceptions ensure that certain types of payments are consistently reported to the IRS for oversight.

One exception involves payments for medical and health care services. If a business pays $600 or more to a corporation, including a nonprofit hospital or clinic, for medical or health care services, those payments must be reported on Form 1099-MISC, Miscellaneous Information.

Another exception applies to payments for legal services. Payments of $600 or more to an attorney or law firm must be reported, even if the firm is incorporated. These payments are reported on Form 1099-NEC for legal services or on Form 1099-MISC for gross proceeds from a settlement.

Information Gathering and Verification

Before issuing a payment that could be subject to 1099 reporting, request a completed Form W-9, Request for Taxpayer Identification Number and Certification, from the vendor. This form gathers the necessary information to determine your reporting obligations, including the vendor’s legal name, business name, address, and Taxpayer Identification Number (TIN).

The Form W-9 is useful for confirming a nonprofit’s status. The form includes a box for “Federal tax classification,” where the entity indicates if it is a C Corporation, S Corporation, or other type of entity. For nonprofits, the “Exempt payee code” box allows the organization to certify its tax-exempt status under specific IRS codes, such as 501(c)(3). This documentation serves as your justification for not issuing a 1099 to an exempt corporation.

Having a completed Form W-9 on file for every vendor removes ambiguity about their tax status and provides the information needed if a 1099 is required. Blank W-9 forms can be downloaded from the IRS website. Businesses should make it a standard part of their vendor onboarding process to have this form completed before payment is made.

Filing Form 1099 When Required

When a Form 1099 is necessary, there are specific deadlines to follow. The deadline for furnishing the recipient with their copy of Form 1099-NEC and for filing with the IRS is January 31 of the year following the payment year.

For businesses filing 10 or more information returns in aggregate (including Forms W-2, 1099-NEC, and 1099-MISC), electronic filing is mandatory. The IRS provides online portals for this, including the Information Returns Intake System (IRIS) and the Filing Information Returns Electronically (FIRE) system. The IRS is phasing out the FIRE system and encourages filers to transition to IRIS, as the 2025 tax year will be the final year FIRE can be used.

For those filing fewer than 10 returns and choosing to file by mail, paper forms must be sent to the IRS with Form 1096, Annual Summary and Transmittal of U.S. Information Returns. A separate Form 1096 is required for each type of information return being filed, and it summarizes the total number of forms and amounts being reported.