It’s the last day of January, and if you know anyone who works in non-profit finance, they are probably looking little draggy today. January is the month that employee paperwork is all due — quarterlies, W2s, and especially the dreaded 1099s (as well as many grant reports and applications — funders, why do you DO that??)
1099s are especially hairy. Organizations (and any company, or honestly even a single payer) needs to send a 1099 to (almost) anyone that worked for them during the previous calendar year that made $600 and above.
If they were paid by credit card or debit card, the organization does not have to send one, because the credit card company does in a 1099-K. Interestingly, the credit card company has to send one only if there was $20,000 or more in aggregated payments; that was supposed to go down to $600 this year, but it was postponed. Organizations take note; if you use Divvy, they do NOT 1099 and you will have to do so.
Payers like PayPal and Venmo also 1099, unless you are using the “Friends and Family” option, in which case they don’t 1099 and the payer does have to 1099 them! And if you are using Venmo to pay people, just DON’T (another post on that later).
Other incidents that you have to 1099 for include royalties, winnings, interest paid (even if to a private person like in a personal loan), and rent (that last one is the one that usually catches people up). Plus a few other things I have not mentioned here, like fishing proceeds.
Until a few years ago, the 1099-MISC was the default form. Then, the IRS divided it up, so rent/royalties/interest, etc. still go on a 1099-MISC, but “non-employee compensation” goes on (you guessed it), a 1099-NEC.
They also changed the due dates. Up until a few years ago, you had until 1/31 to send out the 1099s, and then 60 days more to file with the IRS, allowing you time to make any corrections. Now they are due to be both sent AND filed by 1/31, and the payer has to issue a corrected 1099 if something needs to be fixed. This year, one of the major filers (Intuit) pushed that due date even earlier due to changing to a filing service that mails out the forms rather than allowing people to do it on their own, so everything needed to be in by 1/27.
A few other things that catch people up — 1099s are on the calendar year (like W2s), so even if your fiscal year is on a different timeframe, you need to be looking back at the whole previous year. And they are on a cash basis, so if you have a bill in the system that was not paid out, you don’t count it (likewise, if you had a bill entered in 2021 that you paid in 2022, you do have to include it.)
In the past, 1099 rules have also said you need to 1099 anyone who makes $600 or more, even if only part of that is non-employee compensation (for instance, if someone made $500 in payroll and then was paid a $100 stipend for a different job). This rule seems to be relaxed as of this year.
1099s also need to be issued for per diems. Materials are a mixed bag, depending on whether they were part of the contractor’s bill, whether receipts were provided, and whether the organization has an accountable or non-accountable plan. A note for you, the 1099 recipient; if it is not included on the 1099, you can’t deduct the associated expense from your taxes.
Then there is the matter of getting the information. The best practice is always to get a W9 when you pay out a new vendor, to enter that information in the accounting system, and to map out the 1099 liability correctly. However, there are often barriers to that.
The first/main problem is that, when requesting a bill, the payer’s representative often forgets to collect a W9 from the vendor. Often the payer is concerned about ensuring the vendor is paid on time, and does not request one when the check comes in, figuring they will get it “later” — and that holds things up at 1099 time. Want to help out here? If you are a purchaser for an organization, support your finance department in collecting that W9 at the time of purchase. If you are a vendor, just send your W9 with your first bill, and update it if you have address changes or the like.
Some organizations use electronic W9 services; I especially like Track1099 so I can get the W9 electronically and have the vendor update it annually.
If you do get a message from an organization that they need your W9, shoot it off as soon as you can. If they don’t have it by 1/31, they will have to submit your 1099 without your tax ID number, and I can’t think of a quicker way to get the IRS to take an interest in your taxes.
It can also be tricky for the payer to determine if a 1099 is actually needed. Non-profits don’t need to get them. Individual filers do need them, as do LLCs; however, corporations (such as S-corps, C-corps, and LLCs taxed as S-corps or C-corps) do not. If in doubt, send one. It doesn’t hurt anything; the payees should be declaring that income on their taxes whether or not they receive a 1099 (including if they are below the $600 limit).
Finally, a tip for organizations; don’t rely on your 1099 report from QuickBooks to pull the information. Do a quick analysis of all payments in case something is missed. I like to run a transaction report by vendor to ensure something was not mis-categorized. I also check other payment logs, in case the payee was accidentally entered into the system as a customer, employee, or “other” rather than as a vendor.
See why it’s not yet 9am on the last day of January and I am already bleary? But I’m almost done. If you have non-profit finance people in your life, it’s a good day to buy them a cup of coffee.