Do You Issue a 1099 to a Nonprofit?
Making payments to a nonprofit? Your tax reporting obligations depend on the organization's legal structure and the nature of the service provided.
Businesses often face uncertainty when determining their tax reporting obligations for payments made to nonprofit organizations. The requirement to issue a Form 1099, an information return used to report certain types of payments, is a frequent source of this confusion. The unique tax-exempt status of many nonprofits creates questions about when a 1099 is necessary. Understanding the specific rules and exceptions is important for maintaining compliance with IRS regulations.
Determining the Filing Requirement
The general rule requires a business to issue a Form 1099 to any entity to whom it has paid $600 or more for services during the calendar year. These payments must be made in the course of the payer’s trade or business.
An exemption to this rule applies to payments made to corporations. Most nonprofit organizations are structured as corporations under state law, often as 501(c)(3) corporations, and are therefore exempt from receiving a Form 1099 for services rendered. This corporate status is the primary reason a business might not need to issue a 1099 for a payment to a nonprofit that exceeds the $600 threshold.
The organizational structure of the nonprofit is the deciding factor. If a nonprofit is organized as a trust or an unincorporated association rather than a corporation, the exemption does not apply. In these cases, payments of $600 or more for services would require the issuance of a Form 1099.
Exceptions to the Corporation Rule
Even when a nonprofit organization is a corporation, certain types of payments override the general exemption and trigger a Form 1099 reporting requirement. One exception involves payments for medical and health care services. If a business makes a payment of $600 or more to a nonprofit hospital, clinic, or other health care provider for medical services, it must report these payments on a Form 1099, regardless of the provider’s corporate status.
Another exception relates to payments made to attorneys. Gross proceeds of $600 or more paid to a nonprofit law firm or legal aid society for legal services must be reported. This rule applies even if the legal services are provided by a corporation.
Information and Documentation Needed
Before issuing any payments to a vendor, including a nonprofit, a business should request a completed Form W-9, Request for Taxpayer Identification Number and Certification. This form is the primary tool for gathering the necessary information from the payee. The Form W-9 provides the data points needed to determine filing requirements and complete a Form 1099 if one is necessary.
Key information on the W-9 includes the nonprofit’s legal name, any business name, and its mailing address. The form has a section for the vendor to indicate its federal tax classification by checking a box for C Corporation, S Corporation, Partnership, or Trust. This checkbox is how a business can confirm if a nonprofit is a corporation and therefore exempt from 1099 reporting. The Form W-9 also provides the nonprofit’s Taxpayer Identification Number (TIN), which must be included on the Form 1099.
Filing the Correct Form 1099
Once a business determines that a Form 1099 is required for a payment to a nonprofit, the next step is to file the correct form. The specific form used depends on the nature of the payment. For payments for services rendered by a nonprofit that is not an exempt corporation, the business will file Form 1099-NEC, Nonemployee Compensation. If the payment is for other purposes, such as rent paid to a nonprofit, the business would use Form 1099-MISC, Miscellaneous Information.
The deadlines for filing are strict. A copy of the Form 1099-NEC must be sent to both the nonprofit recipient and the IRS by January 31 of the year following the payment year. For Form 1099-MISC, the deadline to furnish a copy to the recipient is also January 31, but the deadline for filing with the IRS is February 28 if filing by mail, or March 31 if filing electronically.
IRS regulations now require electronic filing for businesses that file 10 or more information returns in total during a calendar year. This 10-return limit is an aggregate count, including the combined total of all types of information returns, such as Forms 1099 and W-2.