Jitasa Nonprofit Blog

The Truth About 1099s

What’s the difference between an employee and a contractor?

The IRS states that, “the general rule is that an individual is an independent contractor if the payer has the right to control or direct only the result of the work and not what will be done and how it will be done.” In laymen’s terms, this means that if you can tell someone how to do their job they’re an employee…if you can’t they’re a contractor.

For example, if you hire a plumber, you don’t stand over his shoulder and tell him he’s using his compression sleeve puller incorrectly. You trust that he understands his specialized job requirements and pay him when his job is done. As such, he is a contractor and would be issued a 1099 if you fork out more than $600 to him or his company.

In contrast, if you hire a secretary, you dictate how they answer the phone, or greet visitors. You provide them with weekly tasks, and expect them to perform these tasks within a certain time frame. They are your employee, and you are required to provide them a W-2 for tax filing purposes.

Who gets a 1099?

As a nonprofit, you are required to send a form 1099-MISC to anyone who has earned more than $600 while performing work for your organization, this includes, persons (such as the plumber), subcontractors, and independent contractors. This rule also applies to all vendors that do business with a nonprofit organization are to be treated as independent contractors and issued a 1099 form. This includes those vendors who lease equipment for business needs.

Who doesn’t get a 1099?

This depends on how the entity is organized and the amount that you’ve paid them for their services during the year. If an organization is incorporated, or you’ve paid them less than $600 (total) for the year, they will not need a 1099. However, predicting costs and determining how a company is organized can be difficult.

Because of these difficulties it is best practice to ALWAYS request a Form W9 at the beginning of your work relationship from every vendor you work with. This form asks for the companies’ legal business name, organization type, and Tax ID. All of this information is required on the 1099 form. Without it, preparing the 1099 form becomes difficult. Requesting this information at the beginning of your working relationship will save you a great deal of time at the end of the year.

When am I required to send 1099’s?

1099′s need to be mailed by January 31. A 1096 will need to be filed with the government as well, which is basically a compiled copy of all the 1099′s your nonprofit has sent out. Typically, when you buy a pack of 1099s it will come with both the 1096 and its instructions.

Other Resources:

Visit Quickbooks website to print 1099 and 1096 forms and instructions, and to find out how to enter information into quickbooks for tracking purposes.

View a completed 1099 form if you’re having trouble.

Renata Poe Massie, Content Writer for Jitasa

 

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