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Contractor invoice template for non-profit organizations

at Foundation group we get loads of questions about some non-profit tax and compliance subjects that on the surface might seem obscure two of those issues are form W9 and form 1099. would you believe we get multiple questions about these every week it's true so let's get into it [Music] hi this is Greg McRae founder and CEO of foundation group and welcome back to our 501c3 University Channel where we strive to make non-profit issues understandable we're continuing our series of viewer and reader questions and today's questions revolve around forms W9 and 1099. first let me briefly explain what those are first let's look at IRS form W9 now form W9 is used by one taxpayer to obtain the social security number from a person or an employer ID number or Ein from a business why would you do that well it's usually about somebody paying somebody else so they need the tax identification number of that person or business for example if my nonprofit receives services from a self-employed electrician my organization should require him to fill out a W-9 so that we have his tax ID number at the end of the year since he's a sole proprietor meaning his company isn't Incorporated it's just him we need to send him a form 1099 at the end of the year for the amount of service fees we paid him assuming it's over 600 for the year I know we just said 10.99s but we'll get there I want to finish the thought on w9's first a very key point is that form W-9 never gets submitted to the IRA address or your state even though it's an official IRS form it is exclusively for the internal use of your organization in reporting payments made to this individual also it contains very sensitive information and as such you got to protect it from public exposure and from those who have no reason to know this information another key point about form W9 it's not to be used with employees it's only for those non-employees that you will be paying who will receive a version of form 1099 which is what I'll move to now now there are several versions of form 1099 but I'm going to limit my conversation to form 1099 miscellaneous and form 1099 NEC for seemingly forever form 1099 miscellaneous was the only one worth mentioning form 1099 NEC didn't even exist until just a few years ago form 1099 miscellaneous was used to report payments to independent contractors rent payments all kinds of you guessed it miscellaneous compensation now we have form 1099 NEC and the NEC stands for non-employee compensation that used to be what box 7 on form 1099 miscellaneous was used for but now it's on its own form so in my example of the electrician my non-profit used form W9 to obtain a social security number so that we could report his payments at the end of the year on form 1099 NEC got it good so now back to the issue at hand and that's the voluminous questions we get about these filing forms the first one today comes from Chris and he writes if her 501c3 holds a fundraiser for a family and writes them a check for eighteen hundred dollars are we required to ask them for a W-9 so that we can send them a 10.99 great question and it covers both forms the short answer is Chris no you don't now I'm presuming that the money raised was for charitable or benevolent assistance of some sort for this family if that's the case the money is a gift in form 1099 is for reporting taxable compensation not gifts gifts are never taxable to the recipient ever therefore you would never want to send them a 1099. it's important to note that unlike a W-9 and a copy of 1099 is sent to the IRS meaning you're reporting that you paid someone taxable non-wage income that means the IRS will be expecting the recipient of that 1099 to report the income and pay taxes on it so never do that for a gift question two comes from Katie our non-profit hosted a t-shirt design contest and awarded three cash prizes for the top submissions do we need to get the 1099s from the winners or can these be considered honorary items the amounts were 250 or less well for starters Katie I think you're a little confused on the form you're talking about what you really mean is should you get a form W-9 from the winners so that you can issue them a 10.99 for the winnings at the end of the year I'll address two aspects of the question the first issue is whether these payments qualify for taxable reporting in general the answer is yes prize winnings are generally taxable if you win a lottery or hit it big in Vegas you're going to get issued a 1099 miscellaneous for that in Katie's situation the prizes are technically taxable so they could issue a form 1099 miscellaneous at the end of the year to these winners the second thing to consider is whether they have to and the answer to that is no each Winner's prize was no more than 250 dollars and the threshold for the non-profit to report the winnings is six hundred dollars but even if Katie's non-profit chooses not to issue a 1099 the winning should still be reported by the recipients you want to take bets as to whether the winners will do that I think you know the answer to that our third and final question for today comes from Shannon I volunteer with a youth club that helps students with speech and debate we hosted a camp over the summer and paid an individual over six hundred dollars to run the camp she has hosted many camps in the area but is doing it as an individual not as an LLC or a corporation do I need to issue a 1099 if I do I am past the deadline so what do I do now again a very common scenario yes Shannon this individual is the textbook independent contractor and you should absolutely be providing form 1099 NEC to her now the hard part you're late form 1099 NEC must be in the hands of the contractor by January 31st for payments made the prior year and a copy that goes to the IRS must be filed by either the end of February if you're mailing it or March 31st if you're sending it in electronically now if you're only late sending the one to the contractor but still within the IRS copy deadline you're probably okay it might irritate the contractor to get their 1099 late but it is what it is if you're sending a light copy to the IRS they will penalize you at least fifty dollars per late 1099 plus interest and that's going up to sixty dollars next year but file it late anyway you have a legal obligation to do this penalty notwithstanding I hope that helps you Shannon as well as Katie and Chris if you all are asking these questions it means that hundreds of others are wondering the same thing but didn't ask that's it for today now go serve your community hey do me a favor and don't navigate away just yet we would really appreciate it if you would hit the like button below as it really helps get our content recommended to more people subscribe if you haven't already as we have great content coming your way on a regular basis finally you can click the little bell icon to be notified of new content when we post it to learn more about Foundation group you can visit us on the web at .501c3.org thanks and we'll see you next time [Music] thank you [Music]