Do Tax-Exempt Organizations Receive a 1099? – Avoid This Mistake + FAQs

No, tax-exempt organizations do not receive Form 1099 for most payments made to them, because the IRS generally exempts payments to these entities from 1099 reporting requirements.

This means if you pay a 501(c)(3) charity, a church, or another tax-exempt entity for goods or services, you’re usually not required to send them a Form 1099.

However, as with many IRS rules, there are important exceptions and nuances to understand.

According to a 2023 Nonprofit Compliance Survey, 40% of nonprofits admitted confusion about 1099 rules, leading to filing mistakes that diverted funds from their mission. In this comprehensive guide, you’ll learn:

• 📌 IRS Rules Uncovered: Why payments to tax-exempt organizations are usually exempt from 1099s – and the key exceptions every payer should know.

• 💡 1099 Form Variations Explained: From Form 1099-NEC to 1099-K, discover how every type of 1099 might (or might not) apply to nonprofits, churches, and other exempt entities.

• ⚠️ Avoiding Penalties: How seemingly minor mistakes – like misclassifying a worker or skipping a required form – can trigger IRS penalties and how to avoid these costly errors.

• 🏷️ Real-World Examples: Learn from real scenarios (including a court case involving a nonprofit) illustrating what happens when 1099 rules are mismanaged.

• 🌐 Federal vs State Laws: Understand the differences between federal 1099 requirements and state-level nuances so your organization stays compliant on all fronts.

Tax-Exempt Organizations vs. 1099 Forms: The Surprising Truth

When it comes to IRS information returns like Form 1099, tax-exempt organizations enjoy a special status.

Under federal law (specifically Internal Revenue Code §6041), businesses must report certain payments of $600 or more on a 1099. But the IRS carves out an exception: payments made to corporations and tax-exempt entities generally do not require a 1099.

This might surprise many, but it’s the surprising truth – the IRS doesn’t want or need 1099 forms for most payments going to recognized tax-exempt organizations.

Why such an exception? In short, Form 1099 exists to help the IRS track taxable income that might otherwise go unreported. Tax-exempt organizations (like charities under section 501(c)(3), social welfare groups under 501(c)(4), and so on) aren’t subject to income tax on their program revenue and donations, so payments to them typically aren’t part of taxable income for a taxpayer that the IRS is tracking.

Additionally, many tax-exempt entities are structured as nonprofit corporations, which places them in the same bucket as regular corporations for 1099 purposes – and corporations don’t usually get 1099s either (with a few notable exceptions we’ll explore).

Key takeaway: If you’re a business owner or donor wondering “Should I send a 1099 to a tax-exempt organization I paid?” – the answer in most cases is no. Likewise, if you manage a nonprofit and are puzzled because you didn’t receive a 1099 from someone who paid you, that’s usually normal.

However, “usually” doesn’t mean “always.” Let’s uncover those hidden IRS exceptions and special scenarios where even a tax-exempt organization would receive a 1099 form.

Hidden IRS Exceptions: When a Tax-Exempt Does Get a 1099

Despite the general rule, there are specific scenarios where a tax-exempt organization may indeed receive a Form 1099. These exceptions typically relate to the type of payment:

• Medical and Health Care Payments: If a business or insurance company pays a tax-exempt hospital, clinic, or healthcare provider over $600 for medical or health services, that payment is reportable on a Form 1099-MISC. The IRS explicitly does not exempt corporations (or nonprofits) from 1099 reporting for medical payments. So, a nonprofit hospital could receive a 1099-MISC for services billed.

• Legal Services Payments: Similarly, payments for legal services are an exception. If you pay legal fees over $600 to a law firm or attorney, you must issue a 1099 (typically a 1099-NEC for attorney fees). This rule applies even if the law firm is a nonprofit legal aid organization or incorporated. For example, paying a tax-exempt legal clinic for consulting on a case still requires you to send them a 1099 for those fees.

• Sales via Third-Party Platforms: Tax-exempt entities that sell goods or tickets or receive payments via third-party payment processors might trigger a Form 1099-K. Platforms like PayPal, Stripe, or event ticketing sites must issue Form 1099-K to any payee (including nonprofits) if transactions exceed the threshold (often $600 in a year under recent law changes). So, if your charity runs a fundraiser and collects $5,000 through PayPal, expect a 1099-K from the payment platform reporting that amount.

• Investment Income: While banks and brokers are not required to send 1099s to tax-exempt customers, sometimes a tax-exempt might still receive forms like 1099-INT (Interest Income) or 1099-DIV (Dividends) for record-keeping. For instance, a nonprofit with an interest-bearing bank account or stock investments may get these statements. Technically, financial institutions don’t need to issue 1099-INT/DIV to corporations or tax-exempt organizations, but some do anyway or the nonprofit may see an interest statement. Even if issued, such interest or dividends are usually tax-exempt income for the nonprofit (and reported on its Form 990 if required, not taxable on a 990-T unless it’s debt-financed income).

• Real Estate Transactions: If a tax-exempt organization sells real estate, the title company might issue a Form 1099-S (Proceeds from Real Estate Transactions) to report the sale proceeds. There’s no special exemption in that reporting requirement for the seller being a nonprofit. The nonprofit likely won’t owe tax on gains if the property was used for its exempt purpose, but the 1099-S ensures transparency of the transaction.

• Debt Cancellation: In the rare case a tax-exempt organization has debt forgiven (say a bank cancels a loan to a small nonprofit), the lender might issue a Form 1099-C (Cancellation of Debt). Tax-exempt status doesn’t automatically exempt the organization from receiving a 1099-C, although the forgiven debt might not be taxable to a charity the way it is for a regular business.

These scenarios are less common, but they illustrate that tax-exempt organizations aren’t completely invisible to 1099 reporting. The nature of the payment dictates the need. If the payment is one the IRS tracks for all recipients (like medical fees, legal fees, or large payment processing flows), then being a charity or exempt entity doesn’t shield you from the 1099.

Example – A Rare 1099 for a Church:

Imagine a small business hires a local church (a tax-exempt entity) to run a counseling program for the business’s employees, paying the church $1,000 for this service. Under IRS rules, payments for services to a corporation (the church is likely incorporated as a nonprofit) don’t need a 1099-NEC.

No 1099 is required here. But if that same business instead paid the church’s attorney $1,000 for legal work related to setting up the program, a 1099-NEC would be required for the attorney’s fees, even if the law office is affiliated with the church.

1099 Form Variations and Tax-Exempt Entities: Complete Breakdown

Not all 1099s are created equal – there are numerous variations of the form, each for different kinds of income.

To fully answer “Do tax-exempt organizations receive a 1099?”, we must consider each 1099 form type and how it intersects with nonprofits and other exempt entities. Here’s a breakdown:

Form 1099-NEC & 1099-MISC: Nonemployee Compensation and Miscellaneous Income

These two are the most discussed in the context of nonprofits:

• Form 1099-NEC is used to report payments of $600 or more for services performed by someone who’s not your employee (independent contractors, freelancers, gig workers). If a tax-exempt organization provides a service for your business (say, a nonprofit is consulting on a project), technically that’s nonemployee compensation.

• However, since the nonprofit is a tax-exempt entity (often a corporation), you are not required to issue a 1099-NEC to them. The exception is if that payment was for legal services as noted earlier.

• Form 1099-MISC covers various other payments: rent, royalties, prizes/awards, grant payments, medical payments, etc. Again, generally do not send a 1099-MISC to a tax-exempt organization for things like rent or prizes. For example, if your company rents office space from a local charity for $800 a month, you normally would issue a 1099-MISC to a landlord – but because the landlord is a 501(c)(3) nonprofit, no 1099-MISC is required for the rent. Notably, medical payments (if your business paid a nonprofit clinic $1,000 for employee flu shots, for instance) are an exception and a 1099-MISC should be filed for those.

Related entity concepts: Foundations and grants. If a private foundation (itself a tax-exempt entity) gives a grant to a public charity, that is not a reportable 1099 transaction – it’s a gift or grant, not a payment for services. Foundations report grants separately on their own tax returns (Form 990-PF), but they don’t issue 1099s to grantees.

Form 1099-INT & 1099-DIV: Interest and Dividends

• Form 1099-INT (Interest Income) is typically issued by banks to anyone who earns over $10 in interest. But banks are not required to send a 1099-INT to corporations or tax-exempt organizations. Many nonprofit organizations have savings accounts or investment accounts, and they may earn a little interest.

• If the bank knows the account holder is a corporation or charity (via the FEIN and W-9 information on file), it usually will mark the account as an “exempt recipient” and skip the 1099-INT. So the nonprofit might not receive any tax form for that interest. Regardless, the nonprofit should still track that interest as revenue (typically, interest income is excluded from tax for the nonprofit, unless it’s from an unrelated trade or business that is debt-financed).

• Form 1099-DIV (Dividends and Distributions) similarly is used by brokers or companies to report dividends paid to shareholders. If a tax-exempt organization owns stocks (say your 501(c)(3) has an endowment invested in the market), it could be paid dividends. A corporation or exempt org shareholder doesn’t need a 1099-DIV sent to them under IRS rules. So the nonprofit might not see one.

• But internally, that dividend income would still be recorded in their books and on Form 990. Like interest, dividends are usually not taxed for the nonprofit (again not counting special cases of debt-financed investments or certain private foundations subject to excise taxes).

Form 1099-B & 1099-S: Broker and Real Estate Transactions

• Form 1099-B (Proceeds from Broker Transactions) reports sales of securities (stocks, bonds, etc.). Brokers report sales to ensure taxpayers pay capital gains tax. If a nonprofit sells some stock from its portfolio, technically the broker might not be required to send a 1099-B because the seller is a tax-exempt corporation.

• Many brokerage firms will still provide a year-end statement with all transactions. The nonprofit, not being subject to capital gains tax, doesn’t need the form for tax purposes. But if the nonprofit has to file Form 990-T for unrelated business income, it might need to consider if any gains are taxable (usually not, unless special circumstances).

• Form 1099-S (Real estate transactions) is issued on property sales. There is no broad exemption for recipients here; if your charity sells a piece of land or building for $100,000, the closing agent will likely issue a 1099-S showing the proceeds to the IRS.

• The IRS gets a copy, but since your organization is tax-exempt, it typically wouldn’t owe tax on any gain from selling property used in its mission. Still, the form is a matter of record.

Form 1099-K: Payment Card and Third-Party Payments

• Form 1099-K has become a hot topic recently. It’s issued by payment settlement entities (credit card processors, PayPal, Venmo, Square, etc.) to report the gross amount of payment transactions they processed for a payee. Importantly, there is no exemption for nonprofits or corporations – if the dollar thresholds are met, the 1099-K gets issued.

• Until recently, the threshold was quite high (>$20,000 and 200 transactions in a year). But starting in 2023, the federal threshold is slated to be just $600 (though some relief delayed full implementation). This means even small nonprofits using these apps could start receiving 1099-K forms annually. For example, if a local charity sells $700 worth of t-shirts online using PayPal, PayPal would issue a 1099-K for that year’s payments.

  • Important note: A 1099-K reports the total amount processed; it doesn’t account for refunds or the fact that some payments might be donations (which aren’t taxable income for the charity). Nonprofits receiving a 1099-K must reconcile those amounts in their records but do not pay income tax on true donations just because a 1099-K reported them. The IRS uses 1099-Ks mainly to track business income, but a charity might still get one and just retain it for their files.

Other 1099 Variants:

• Form 1099-G (Certain Government Payments): Unlikely to be issued to a tax-exempt org, as it mainly covers things like tax refunds to individuals or unemployment benefits.

• Form 1099-R (Retirement Plan Distributions): This goes to individuals getting pension or IRA distributions, not organizations. A tax-exempt org wouldn’t be the recipient of a retirement distribution.

• Form 1099-LTC, 1099-SA, 1099-Q, etc.: These pertain to specific personal financial events (long-term care benefits, health savings, education accounts). They generally don’t involve organizations as payees.

• Form 1099-CAP and 1099-C: These deal with corporate actions and debt cancellations as noted. Again, rarely relevant, but if a nonprofit holds certain securities or has debt forgiven, they could encounter them.

In summary, across the whole 1099 spectrum, tax-exempt organizations are by design exempt recipients for most types, meaning the payers are not obligated to send them those forms. But in a handful of categories (especially payment processing, medical/legal payments), a tax-exempt may still find a 1099 in their mailbox.

Should You Send a 1099 to a Tax-Exempt Organization? (What Payers Must Know)

From the perspective of a business or individual who is making a payment, it’s crucial to know when you should or shouldn’t send a 1099. Sending unnecessary forms creates confusion, while failing to send required ones can lead to penalties. Here’s the bottom line:

Generally, do NOT send a 1099-NEC or 1099-MISC to a tax-exempt organization in payment for services, rent, or other routine transactions because it’s not required. The IRS explicitly lists corporations and organizations exempt under Section 501(a) (which covers 501(c) nonprofits) as exempt payees. This is typically indicated on the payee’s Form W-9.

When a tax-exempt organization gives you a Form W-9 (Request for Taxpayer Identification Number), they’ll usually:

• Check the box for “Corporation” or “Other (exempt organization)”.

• Provide their FEIN (Federal Employer Identification Number) as their TIN.

• Often write an Exempt Payee Code, such as “1”, in the space for exemption codes. Code 1 on the W-9 indicates a 501(a) tax-exempt entity or IRA, meaning this payee is exempt from backup withholding and generally exempt from 1099 reporting.

If you have that W-9 on file, you can confidently omit sending them a 1099 (except for the special cases of payments for attorneys or medical services which override the exemption).

Scenario: You hire a nonprofit theater group (a 501(c)(3)) to perform at a company event for $1,000. They give you their W-9 with an EIN and note they’re a 501(c)(3) exempt organization. Come January, you do not issue a 1099-NEC for that $1,000 payment. This is correct compliance, not an oversight.

Why you shouldn’t send a 1099 unnecessarily: Some might think “better safe than sorry” and send a 1099 to everyone, including nonprofits. But consider:

• It can cause confusion for the nonprofit – they might think they need to report it as taxable income somewhere.

• It creates mismatches: The IRS might receive a 1099 for a charity that doesn’t file a tax return (990 is an informational return, not an income tax return), which doesn’t match to an SSN or 1040. This generally isn’t a huge issue, but it’s extraneous paperwork.

• It wastes resources – both yours in preparing the form, and the charity’s in potentially following up with questions.

When you SHOULD send despite tax-exempt status: As covered, if you paid a tax-exempt entity for attorney services or medical services, go ahead and issue that 1099.

Also, if by some chance the organization is not a registered 501(c) or corporation (very rare – most tax-exempts have one of those statuses), you’d treat them like any individual/partnership payee.

Finally, always adhere to the $600 threshold: If your total payments to them were less than $600 in the year, no 1099 is needed for that reason alone (regardless of status).

Tax-Exempt Organizations as Payers: Do Nonprofits Need to Issue 1099s?

Turning the tables – if you manage or work in a tax-exempt organization, you might wonder about your obligations when you pay others. Being tax-exempt does not exempt the organization from compliance responsibilities. In fact, nonprofits must issue 1099 forms just like any other business when they make payments that meet the criteria.

If a tax-exempt organization pays an individual or unincorporated entity $600 or more for services in a year, the organization must issue a Form 1099-NEC (for service payments) or 1099-MISC (for rent, royalties, etc., where applicable) to that payee. Your nonprofit might be mission-driven, but the IRS expects it to follow the same reporting rules:

• Hire a freelance graphic designer for your charity’s annual report? Issue a 1099-NEC if you paid them $600+.

• Pay rent to a local landlord for an event space? Issue a 1099-MISC if $600+ and the landlord is not a corporation.

• Provide a $1,000 honorarium to a guest speaker (who is not on your payroll)? Issue a 1099-NEC.

The IRS even highlights this: tax-exempt or not, you’re a payer. The exemption we discussed earlier is about being a payee. As a payer, a nonprofit organization must collect W-9 forms from its vendors and independent contractors, keep track of cumulative payments, and send out the required 1099s by January 31 each year (to the recipient, and file with the IRS by the due date, often January 31 for 1099-NEC and February 28/March 31 electronically for 1099-MISC).

One caveat: Nonprofits typically do not have to withhold federal income taxes or FICA from payments to independent contractors (they’re not wages). But there’s one situation they must watch – backup withholding.

If the payee (vendor) does not provide a TIN (tax ID) or the IRS flags their TIN as invalid, the nonprofit may have to withhold 24% of the payment and remit it to the IRS as backup withholding. Being a charity doesn’t spare you this duty. So always get that correct W-9 from payees. It not only tells you if they’re exempt from 1099, but also ensures you have info to avoid backup withholding issues.

Real Example: A nonprofit food bank hires a truck driver as an independent contractor to deliver supplies, paying him $5,000 for the year. The driver is a sole proprietor (not incorporated). The food bank must send him a 1099-NEC for $5,000. If the food bank fails to do so, they could face penalties per missing form.

Conversely, if that driver was an LLC taxed as a corporation, and he indicated such on his W-9, the food bank would not send a 1099 (treating him as an incorporated entity). But because he’s a sole proprietor, no exemption applies.

Nonprofit Payroll vs Contractor: Note that employees of nonprofits receive W-2 forms, not 1099s. If someone is on your payroll (even your executive director, etc.), you must withhold taxes and issue W-2s like any employer. 1099s are only for non-employees. Misclassification here is a big no-no, which leads us to some interesting case law.

Cautionary Tale – Misclassifying an Employee as a Contractor

A recent court case underscored this: A nonprofit organization’s founder was paid $120,000 for his services, and the nonprofit issued him a 1099-MISC as an independent contractor. The IRS audited and determined he was actually an employee (since he was essentially running the show and performing key services). The result? The nonprofit was held liable for unpaid employment taxes for misclassifying him.

The existence of a 1099 didn’t save them – in fact, it was evidence of the misclassification. The Tax Court ruled that because he was an officer providing integral services, he should have been treated as an employee (with a W-2) and the organization owed back payroll taxes and penalties.

Lesson for nonprofits: Don’t assume you can choose to treat someone as a contractor just to avoid payroll – the IRS will look at the actual relationship. If in doubt, consult a tax professional. And for any bona fide contractors, always issue the required 1099s.

Real-World Scenarios: 1099s and Tax-Exempt Organizations in Action

To make this even clearer, let’s look at some popular scenarios involving tax-exempt organizations and whether a 1099 comes into play. The table below illustrates three common situations and the proper 1099 handling:

In the first scenario, the charity is the service provider (the payee), but because it’s tax-exempt, the payer doesn’t file a 1099. In the second, the tax-exempt is the payer, and it must fulfill reporting obligations just like any business would. The third scenario shows a case where the form comes from a third-party (the payment platform) rather than a traditional client or vendor relationship.

Consider another example outside the table: A small church (tax-exempt) pays $750 to a plumber (an LLC) for fixing their pipes. If that plumber’s LLC is a single-member LLC not taxed as a corporation (meaning it’s a disregarded entity under an individual’s name), the church should send a 1099-NEC to report the payment because the plumber is essentially a sole proprietor in IRS’s view. The church, despite being a religious organization, has no exemption from issuing that 1099. If the plumber’s LLC had elected corporate tax status, then no 1099 would be required to be sent to the plumber.

Pros and Cons: Using 1099 Contractors vs. Employees in a Nonprofit

One strategic consideration for nonprofits (and any organization) is whether to hire someone as an employee (W-2) or as an independent contractor (1099). This isn’t directly about whether the nonprofit receives a 1099, but it’s related to how nonprofits handle their obligations and can impact compliance. Here’s a quick pros and cons overview:

The decision often comes down to the nature of the work and duration. Many nonprofits use a mix: a core team of employees for ongoing operations and contractors for one-off projects (like a website redesign or consulting report). Important: Always classify correctly. If someone works under your direction, uses your tools, and acts like staff, they probably are staff – issuing them a 1099 to save costs is a trap that can backfire, as seen in the court case example.

Common Mistakes to Avoid with 1099s and Tax-Exempt Entities

To ensure full compliance and maintain the trust of donors, regulators, and the IRS, avoid these common pitfalls related to 1099 forms and tax-exempt organizations:

1. Assuming “Tax-Exempt” Means “Exempt from Everything”: Being exempt from income tax doesn’t mean exempt from tax filings. Nonprofits must still file information returns (like the Form 990 series annually) and issue 1099s when applicable. Don’t neglect your filing duties; the IRS can and does penalize nonprofits for failing to file required forms.

2. Sending Unnecessary 1099s: Some well-meaning accountants or volunteers err on the side of caution and send a 1099 to every entity paid. This leads to charities receiving puzzling 1099s. While usually harmless, it’s extra work and could confuse records. Always check if the payee is incorporated or tax-exempt via their W-9. If they are, skip the 1099 (unless it’s a special-case payment). Focus your energy on those truly required.

3. Failing to Issue Required 1099s: The flip side mistake – thinking your nonprofit status absolves you from issuing 1099s. If you pay a contractor, vendor, or freelancer as described, you must furnish the forms. The IRS has penalized nonprofits for missing 1099s. For instance, forgetting to send a 1099-NEC to a consultant could cost $50-$290 in penalties per form (depending on how late the correction is), and higher if the IRS finds intentional disregard.

4. Missing the Deadline: All 1099s for the previous calendar year are generally due to recipients by January 31. Many organizations, busy with year-end and holiday activities, procrastinate and miss this deadline. Mark it on your calendar and prepare in advance (you can even fill out 1099s in December for known amounts). Late filings not only incur fees, they also can tarnish your organization’s compliance reputation.

5. Not Collecting W-9s Upfront: Without a Form W-9 from each vendor, you won’t know their tax status or TIN. This can lead to guessing or scrambling in January. Worst case, if they never provided a TIN, you should have been backup withholding 24% of their pay – a messy situation to discover late. Always request a W-9 before paying a new contractor or vendor. This way you know if they’re a corporation (exempt from 1099) or an individual (not exempt) and have their correct name and EIN/SSN.

6. Misclassifying Workers: As discussed, treating employees as contractors to avoid W-2s is risky. The IRS can impose back taxes, interest, and penalties. If your organization has officers or key personnel you’re paying via 1099, double-check with a CPA or attorney if that’s legitimate. The IRS tends to scrutinize nonprofits for this, because a misclassification might also mean failing to report compensation properly on Form 990.

7. Ignoring 1099-Ks and Other Forms Received: If your nonprofit does receive a 1099-K or other income form, don’t just toss it aside. While you might not owe taxes on that income, you should reconcile it with your records. If a 1099-K shows $10,000 received via credit card donations, ensure your internal books also show roughly $10,000 in donation revenue from that source. If there’s a large discrepancy, investigate why (Were some transactions refunds? Did the processor fee get netted? etc.). The IRS has been known to question organizations (including tax-exempts) if a 1099-K amount looks like business income that wasn’t reported anywhere. You might need to explain that those were tax-deductible donations.

8. Overlooking State Requirements: Many focus on the IRS rules but forget states. Some states require filing copies of 1099 forms with the state department of revenue. Others have separate reporting for independent contractors (for example, California requires a form DE-542 report when you hire a new independent contractor for over $600). While payments to corporations are generally exempt at the federal level, a few states might not recognize all the same exemptions for state filing. Always check your state’s guidelines to avoid state-level penalties.

Federal Law vs. State Law: Navigating the Differences

Thus far, we’ve mainly discussed U.S. federal law – IRS rules that apply nationwide. But state tax laws can layer on additional requirements. It’s crucial for full compliance to address both levels:

• Federal (IRS) Law: As explained, IRS rules say no 1099 needed to tax-exempt organizations in most cases. The IRS cares that nonprofits themselves issue 1099s when appropriate and file their own returns (like Form 990). Penalties for not issuing a required 1099 can range from $60 up to $310 per form (for tax year 2025) depending on lateness, and higher for intentional failures. The federal backup withholding rate is 24% if required (for instance, if an exempt org fails to provide its TIN, theoretically a payer would withhold 24% of payments, though a bona fide charity would normally always provide an EIN).

• State Laws and Nuances: Most states align with the IRS on not needing 1099s for corporate or tax-exempt payees. However, states often require that if you file federal 1099s, you also submit them to the state or at least report the income to the state’s tax authority. For example, if your charity paid an independent contractor in a state that has income tax, you might need to send a copy of the 1099-NEC to that state’s tax agency or ensure it’s reported via a combined federal/state filing program. Failing to do so could result in state penalties separate from the IRS.

  • State Registration: Note that to be recognized as tax-exempt from state taxes, nonprofits often register with the state (for example, getting state sales tax exemption or state income tax exemption). This is separate from the 1099 topic, but it’s worth ensuring your nonprofit is properly registered in each state it operates if you want state-level tax benefits. If a nonprofit isn’t recognized in a given state, a payer in that state might not realize the entity is tax-exempt and could erroneously send a 1099.

  • State Contractor Reporting: As mentioned, states like California require a report when engaging contractors (to help enforce things like workers’ comp, unemployment insurance, or child support). These are not tax forms per se, but a compliance point: e.g., California’s Employment Development Department (EDD) wants notice within 20 days of paying over $600 to a new independent contractor, even if that contractor is a corporation. Nonprofits are not exempt from these requirements either.

  • Different Thresholds or Forms: Prior to the federal change, some states set their own lower thresholds for 1099-K or similar reporting. For instance, Massachusetts and Vermont had a $600 threshold for 1099-K even before the federal law changed, meaning nonprofits in those states may have been getting 1099-Ks earlier. Always stay updated on your state’s latest rules since they can change and sometimes diverge from federal standards.

In practice, the heavy lifting of compliance is at the federal level. If you follow the IRS rules correctly, you’re likely in good shape, as states often piggyback on federal filings. Just remember to send copies of any 1099s to states if required (some states are part of the IRS Combined Filing Program, others need separate submission).

Pro Tip: Use an e-filing system for 1099s that offers to file with states automatically if needed. This covers your bases and ensures your nonprofit doesn’t accidentally flub a state requirement.

Finally, ensure that your understanding of “tax-exempt organizations” is aligned with U.S. definitions. We’re talking about entities recognized under the U.S. Internal Revenue Code (501(c) types, government entities, etc.). If dealing with foreign entities or unusual cases, the rules can differ (for example, paying a foreign charity has its own reporting under Form 1042-S potentially, not 1099).

FAQs on Tax-Exempt Organizations and 1099s

Do tax-exempt organizations get 1099 forms for payments?
No, generally payments made to a tax-exempt organization are exempt from Form 1099 reporting. Exceptions apply for certain payments (like legal or medical fees), but usually no 1099 is sent to a 501(c) entity.

Must a nonprofit issue 1099s when it pays contractors?
Yes, tax-exempt nonprofits must issue 1099 forms to contractors or vendors if payments exceed $600 and the vendor isn’t incorporated. Nonprofit status doesn’t remove the obligation to report nonemployee compensation.

Are churches and charities exempt from 1099 reporting?
Yes, if they are the payee. Payers don’t need to send 1099s to churches, charities, or other 501(c) organizations for most transactions. The church itself must report payments it makes just like any other payer.

Should a 501(c)(3) provide a W-9 form to payers?
Yes, a tax-exempt 501(c)(3) should complete a W-9 when requested. On the W-9 it will indicate its name, EIN, and that it’s a corporation or exempt organization. This lets the payer know no 1099 is required.

Do government entities receive 1099 forms?
No, government entities (cities, states, federal agencies) are tax-exempt and are exempt recipients for 1099 purposes. For example, if you pay a state university (public university) for a service, you don’t issue a 1099 to the state entity.

Can sending a 1099 to a nonprofit do any harm?
No, it typically doesn’t cause harm or tax liability by itself, but it’s unnecessary. The nonprofit might ignore it or contact you to clarify. It’s better to follow IRS guidelines so as not to create confusion.

Does a nonprofit pay tax on income reported on a 1099-K?
No, not if it’s truly tax-exempt income. A 1099-K just reports payment transactions. The nonprofit will include the revenue on its Form 990 report. It only pays taxes if the income is from an unrelated business activity (via Form 990-T), not because of the 1099-K itself.

Will not filing a required 1099 jeopardize a nonprofit’s tax-exempt status?
No, missing a 1099 filing alone won’t strip tax-exempt status. However, it can lead to fines and signals poor compliance. Pattern of noncompliance might draw IRS attention, so it’s important to meet all filing obligations while exempt.

Do 1099 requirements vary by state for nonprofits?
Yes. Federal rules apply nationwide, but some states require extra 1099 filings or contractor reports. Check your state guidelines. Usually, if you follow federal rules and file any required state copies, you’re safe.

Are there any 1099 forms a nonprofit should expect regularly?
Yes, possibly Form 1099-K if you use payment processors (and exceed thresholds), and sometimes 1099-INT or 1099-DIV for bank interest or investments. These forms help your nonprofit track its income.