his is just a kind reminder to our friends out there in small NFP organizations getting ready to send out W-2s to employees and 1099s to other individuals who received payments of various types in the past year about the new Form 1099-NEC. Prior to 2021, your organization was required to provide a Form 1099-MISC to independent contractors who received payments. The IRS now requires Form 1099-NEC be used instead of Form 1099-MISC when reporting independent contractor income, now labeled “non-employee compensation” or “NEC”. NEC is defined as payments to individuals not on payroll on a contract basis to complete a project or assignment. This is a very common occurrence at small NFP organizations, where independent contractors, gig workers, or otherwise self-employed individuals receive stipends for services rendered.
The due date for the 1099-NEC is January 31, which is right around the corner. The 1099-MISC is due March 1 if filed by paper and March 31 if filed electronically. The familiar $600 threshold is still in place. If your organization paid an independent contractor more than $600 in 2021, it must provide that contractor with a Form 1099-NEC unless the independent contractor is a C corporation or S corporation. You can find this on the Form W-9 you are required to collect from the independent contractor.
Copy A of Form 1099-NEC is filed with the IRS and Copy B is sent to the independent contractor. Most states also require all Form 1099s be filed with them. You will need to consult your tax advisor to see if your state requires this. States have been extremely active in auditing independent contractor payments in recent years. Many states contend all independent contractors should be classified as employees and applicable payroll taxes be remitted. For instance, the State of New Jersey wanted information on the royalties I received on my books published through Amazon to see if I was in fact an employee rather than an independent contractor. Sadly, I am not that great of an author and my royalties were less than $100 for the year. The implementation of Form 1099-NEC should reduce this confusion in the future.
There are significant penalties for being late and misclassifying employees as independent contractors so NFPs do need to pay attention to these requirements. Again, it is critical that NFPs consult their tax advisors.