A tax-exempt organization must file required information returns, such as Form 1099-MISC (PDF). An organization does not withhold income tax or social security and Medicare taxes from, or pay social security and Medicare taxes or federal unemployment tax on amounts it pays to an independent contractor (non-employee). Generally, if the organization pays at least $600 during the year to a non-employee for services (including parts and materials) performed in the course of the organization’s business, it must furnish a Form 1099-MISC, Miscellaneous Income to that person by January 31 of the following year.
The tax-exempt organization will need the social security number or EIN of an independent contractor to complete Form 1099-MISC. If the independent contractor is a sole proprietor, the SSN is preferred. The organization should always ask the independent contractor to complete Form W-9, Request for Taxpayer Identification Number and Certification (PDF), before beginning work.
If the tax-exempt organization does not obtain an SSN or EIN before the organization pays the contractor, the organization must withhold income tax from the payment, generally referred to as backup withholding. Backup withholding rules require that 28 percent of the payment be withheld, and reported on Form 945, Annual Return of Withheld Federal Income Tax (PDF).
Note: Do not report payments to corporations on Form 1099-MISC unless reporting payments for medical, health or legal services. Refer to the General Instructions for Forms 1099, 1098, 5498 and W-2G (PDF) for more information on 1099 reporting and withholding requirements.
Learn more about the benefits, limitations and expectations of tax-exempt organizations by attending 10 courses at the online Small to Mid-Size Tax Exempt Organization Workshop.
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