By Kristin Burnett, Supervisor, Nonprofit Tax
As part of the Protecting Americans from Tax Hikes Act (PATH) of 2015, January 31st is the new deadline to file government copies of Form W-2 (Employee) Wage and Tax Statement and Form 1099-MISC Miscellaneous Income for nonemployee compensation. Therefore, beginning with 2016 Forms W-2 and 1099-MISC, copies must be (1) delivered to the service providers, and (2) filed with the government by January 31, 2017. While various payments are reported on Form 1099-MISC, we recommend a simultaneous review of all payments for proper classification to ensure compliance with the new deadline. The organization should obtain a current Form W-9 Taxpayer Identification Number and Certification before issuing payment to the vendor. This practice will save time and avoid penalties for incorrect or missing information when the Form 1099-MISC must be issued.
Form W-9 can be used as an initial step to determine whether to issue Form 1099-MISC simply by identifying the service provider’s type of organization structure. Generally, payments to corporations (including limited liability companies treated as corporations) are not required to be reported on Form 1099-MISC.
Form 1099-MISC is issued to a vendor when payments are made in the course of your trade or business. An entity is engaged in a trade or business if it operates for gain or profit; including nonprofit organizations, for this purpose. Compensation for services performed in the ordinary course of a trade or business by persons who are not employees is reported on form 1099-MISC, box 7 and is subject to self-employment tax. This includes payments for legal services. Other items reported on Form 1099-MISC income include rents, prizes and awards, and other income. It is very important to understand the purpose of the payment to determine the appropriate box in which to report it on Form 1099-MISC. Note that payments for personal, non-business reasons are not reportable on Form 1099-MISC. However, household employees should receive Form W-2.
Penalties have increased for Form 1099 with respect to incorrect filings, late filings and the failure to file. If Form 1099 is filed within 30 days of the due date the penalty remains at $50 per form. If Form 1099 is filed after 30 days of the due date but, by August 1, the penalty is $100 per Form 1099. If Form 1099 is filed after August 1, the penalty is $260 per 1099. Intentional disregard of filing requirements is subject to a penalty of $530 per Form 1099. Also, see the IRS website: https://www.irs.gov/government-entities/federal-state-local-governments/increase-in-information-return-penalties-2
If you have any questions, please contact Kristin Burnett, firstname.lastname@example.org.