One of the chores we have in the ministry finance area is tracking and reporting to the IRS payments totaling at least $600 in a calendar year to a single recipient.
Complying with this requirement can be confusing. I find that many nonprofit organizations are not aware they are subject to these IRS reporting requirements. So, let me help by providing some guidance on what we are required to do related to reporting IRS Form 1099-MISC:
- Use IRS Form 1099-MISC for reporting payments (disbursements) made to any individual or unincorporated business in the course of your ministry operation in excess of $600 for the calendar year. So whether you make a lump sum payment or payments spread over the year, as long as the total is $600 or greater, you are required to report.
- Wages paid to employees to whom you provide a W-2 are exempt from this reporting requirement. Payments to individuals classified as independent contractors are reported on Form 1099-MISC.
- Generally, payments to corporations are exempt from the reporting requirement. The primary exception to this are payments for medical and health care which are reported in box 6 on Form 1099-MISC. Attorney fees are also reported and included in box 7 on Form 1099-MISC.
- If your ministry makes benevolence payments, these do not need to be reported. However, any benevolence payments to employees are reported on Form W-2.
- Reimbursements or expenses for travel and business which comply with your accountable expense reimbursement plan are not subject to reporting. Using this type of plan, expenses are only reimbursed if they are substantiated with the amount, date and business purpose. Expenses not covered by the plan, are reported on Form W-2 for employees and Form 1099-MISC for nonemployees.
- When making payments to an individual or entity that is subject to this reporting, you will need to obtain a signed Form W-9 which includes a taxpayer identification number. I find that obtaining this before you remit the funds is critical in getting the information you need.
- Payments made by a payments card, such as a corporate credit or debit card are subject to reporting for services purchased as long as they meet the criteria already mentioned. Purchases for goods (products) are not subject to reporting.
- By January 31 of each year, you are required to provide a copy of Form 1099-MISC to the recipient. In addition, you are required to remit all your 1099-MISC forms along with Form 1096 by February 28 of each year.
- The accounting system you utilize should have the ability to track/report all your identified recipients for reporting. This makes it much easier when you do your annual reporting.
Complying with these guidelines can be time consuming but not reporting your Form 1099-MISCs makes your ministry subject to penalties. For additional information and assistance, the IRS has Instructions for Form 1099-MISC.